New Jersey Senators Bob Menendez and Cory Booker wrote a letter last week to leading federal agencies on housing and finance calling for them to take action to address the problem of “zombie” or “walk-away” foreclosures, citing a 29 % increase in such foreclosures in their states in the past year. The senators explained the problem as follows:
A zombie foreclosure is characterized by homes where banks have initiated the foreclosure process, and homeowners have made the painstakingly difficult decision to leave their home, and yet the bank then chooses to walk away from the foreclosure because the value of the property is not worth the cost of maintaining the home and completing the foreclosure process. Often with no notice to the homeowner and based on a profit-driven determination, the bank decides to turn its back on the homeowner, on the property, and on the community at large.
They added what sounds like a call for more vacant property registration (VPR) requirements:
When a bank or mortgage servicer takes stock of their options and determines that the cost of maintenance and the duration of the foreclosure process for a particular home outweighs any potential return on the property, the servicer should be required to take steps to notify the homeowner, contact local authorities, and make arrangements for alternative disposition of the property.
I’ve argued before that the federal government should step in on vacant property registration issues. Maintaining an effective database of these properties is typically too costly for local governments, and the private companies that offer assistance often have troubling ties to the mortgage industry, which is generally opposed to registration requirements.
I proposed the following initiative in a 2010 paper on this issue:
While the MERS Initiative proved the benefit of a national electronic platform for VPR, a federally generated system would provide the same benefit while minimizing the dangers associated with the industry-run MERS. The federal government should develop a standard internet-based platform for registering and tracking vacant properties and then maintain a webspace where local governments can use the platform to create individualized webpages for their VPR officials to use while registering and tracking properties within their jurisdiction. The federal government would not keep a nationally available list of vacant properties, but merely establish a standard platform local governments can use to register properties within their jurisdiction. This type of standardized system would eliminate the mortgage industry’s objection to compliance with varied local procedures. This type of system would also allow local governments to retain control of the contents and enforcement mechanisms of VPR ordinances, since local governments have a better understanding of local markets and conditions. Additionally, a federal system would make it easier for the federal government to establish special programs utilizing the database. For example, Joseph Schilling suggests that the federal government “establish special phone lines between local government officials and lending institutions and perhaps set some standards about call-backs within twenty-four to forty-eight hours.” Of course, such a system would require political will since the public would view it as a federal endorsement of VPR. It would also require initial funding to establish the system and continuing funding to monitor that the system is working properly.
It looks like the first steps of the “political will” part is coming around. Moreover, the technical side of things, the ability to track and present this type of data, have greatly advanced since I wrote that article, as seen in the success of open data initiatives nationwide. In short, perhaps the time is ripe for this type of reform.