The Wall Street Journal-20080128-As Foreclosures Rise- Mayors Brace for Fallout
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As Foreclosures Rise, Mayors Brace for Fallout
Full Text (878 words)WASHINGTON -- Local governments are scrambling to deal with the rising number of foreclosures that strain city services and soon may take a toll on property-tax revenue.
Stemming foreclosures and managing vacant properties so that years of economic development doesn't unravel was a priority as the nation's mayors gathered in Washington last week. Many localities have set up efforts to reach the 50% of people who never even speak to their lender before their homes are foreclosed. Mayors are eager to help constituents make payments or restructure loans because vacant properties pose costly problems.
"Mayors are on the front line," said Douglas Palmer, mayor of Trenton, N.J., and president of the U.S. Conference of Mayors, whose winter meeting ended Friday. "We don't have the luxury of picking and choosing what issues we focus on when people lose their homes, when the grass isn't cut, when property taxes aren't collected and when property values drop."
The cities also are bracing for a drop in tax revenue. A report commissioned by the conference in November projects property values across the country will decline $1.2 trillion this year, leading to a drop in property taxes, a big source of local government revenue. In Ohio, Cuyahoga County Treasurer James Rokakis reports 84,000 reassessments last year driven by requests from Cleveland-area homeowners.
Mayor Brenda Lawrence of Southfield, Mich., told a room packed with fellow city leaders that they should be cutting their budgets now. "I tell you, realistically, to be financially responsible to our residents, we're going to have to make those decisions now," she said.
The mayors also are trying to force lenders to deal with the vacant properties, sometimes before they formally have title. In November, the mayors met with the nation's major lenders, giving them a "hammering," as one mayor put it. Some localities already have turned to the courts to enforce city codes.
"I feel very confident, in terms of our local banks, that there is no question they will step up and respond," said Jerry Abramson, mayor of Louisville, Ky., who was at the November meeting. "When you call Deutsche Bank and they tell you to call this lawyer that's up in God- knows-where, it becomes, you know, a little strained." His city maintains some 1,800 properties, up from 800 a year ago.
Chicago estimates that each vacant house costs the city an average of $34,000 for inspections, court actions, extra law enforcement, visits from city utilities, and sometimes demolition. And there is a toll on law and order as well: Mayor Palmer of Trenton reports his city has an increased crime rate after reaching 40-year lows, driven largely by the theft of copper pipes from empty homes.
Some cities are targeting what they see as the source of the problems. Baltimore sued Wells Fargo & Co. this month, alleging it systematically targeted low-income minority homeowners for loans they couldn't afford, in violation of the Fair Housing Act. In 2005 and 2006, about two-thirds of the bank's foreclosures were in areas of the city that were majority black and 16% were in areas where the population was less than 20% black, according to the lawsuit.
A Wells Fargo spokesman said the company is determined to fight the lawsuit, which, he said, is "not supported by facts or reality." In Cleveland, the city filed a suit in state court alleging 21 lenders had created a "public nuisance."
Chicago has had a program to help residents stay in their houses since 2003, bulking it up in recent months as foreclosures surged. Each week, using court records, the city compiles a list of homeowners who have defaulted on their loans and sends them postcards urging them to get help, said Ellen Sahli, the housing commissioner. It has recruited local ministers to reach homeowners and also has asked lenders to invite their delinquent borrowers to events where they can modify loans on the spot.
Boston has plastered advertisements on bus shelters, billboards and in newspapers, and is airing TV spots directing homeowners to the city's own hot line, said Bill Cotter, a deputy director of Boston's Department of Neighborhood Development. The city also is looking for evidence of fraud by lenders.
Across the Midwest, the problems of abandoned housing are acute. Genesee County Treasurer Dan Kildee said the county owns 8% of the land in Flint, Mich., all formerly abandoned properties acquired through tax foreclosures, using a state law that he helped overhaul. The old process took seven years, but now takes only two.
Midwest officials, and even some from places like San Diego and Connecticut, have come to Mr. Kildee and the Genesee Institute think tank he founded for advice on how to deal with abandoned properties. The key, Mr. Kildee said, is for cities to stop selling tax liens or otherwise liquidating their interest in a property, because such steps put the properties -- and control of the city landscape -- in the hands of speculators.
"Even if a community doesn't own the property," Mr. Kildee said, "local leaders own the problem. The public is going to hold us all accountable for the conditions in our neighborhoods and simply saying this property is owned by some mortgage company or some speculator in some city doesn't get us off the hook."
