Banks and Foreclosures and Residential Real Estate and Regional/National Banks and Low-Income Housing

Pressure on legislature to address abandoned homes

December 14, 2013

The abandoned home problem in the Indianapolis-Carmel metro area was the subject of national ignominy earlier this year when the area was ranked No. 1 in the percentage of homes in the foreclosure process that had been abandoned.

That’s 2,488 vacated homes, or one-in-three foreclosed homes in the metro area. It’s a percentage of abandonment worse than even housing-troubled Las Vegas and Detroit, according to 24/7 Wall Street, using data from analytics firm RealtyTrac.

So perhaps it’s no surprise that incoming Indiana Bankers Association Chairman David Heeter told bankers recently that he thinks it likely bills will be introduced at the Indiana General Assembly early next year related to mortgage foreclosure laws and the abandoned housing problem.

So far, neither the IBA nor local housing advocates contacted were aware of bills likely to be filed on the topic. That the session next month is a short one might discourage any type of comprehensive legislation on the topic, said Joe DeHaven, president of the bankers association.

Even if nothing substantial is filed in the next session, at least the IBA wants to assemble a task force of various industry and community groups to discuss solutions, DeHaven said.

One contributor to the high abandonment rate might be a comparatively long process to complete a foreclosure—about 607 days in Indiana compared to a national average of 477 days.

A big reason for that, according to the IBA, is that Indiana is among states that require foreclosures go through a judicial process that can add months to completing a foreclosure. By then, the downtrodden resident might have vacated the property.

The longer a house sits, the more it may fall into ill repair and be stripped of fixtures and its copper wire—making it that much harder and more expensive to resell. That can hurt a neighborhood’s overall property values, as well.

Putting heat on banks

Another impediment to rehabitation is the secondary mortgage market.

Heeter, who is also CEO of Muncie-based MutualBank, recalled how the bank had originated a mortgage on a property that later fell into foreclosure. Before foreclosure, the mortgage was bought by Freddie Mac and became one of millions of troubled properties owned or serviced by an out-of-state entity to deal with—and not necessarily with any urgency.

“If you don’t own a property, it’s very difficult to do anything about it” at that point, Heeter said.

But housing advocates, including the Fair Housing Center of Central Indiana, have been trying to hold banks more accountable.

In October, the center joined a coalition of groups in filing a complaint with the U.S. Department of Housing and Urban Development against U.S. Bank. They accused the bank of neglecting foreclosed homes in black and Latino neighborhoods, including nearly two dozens homes locally.

Last June, the center and other groups reached a settlement with Wells Fargo Bank, about which they’d similarly complained. The settlement included $1.42 million to be used in Indianapolis neighborhoods.

Such actions are a way to increase the likelihood a bank will maintain a home so it can be resold, said Amy Nelson, executive director of Fair Housing Center.

Meanwhile, the Indiana Housing and Community Development Authority this fall began a series of public forums to discuss the abandoned home problem. An Indianapolis session was led by State Sen. Jim Merritt, R-Indianapolis, and State Rep. Justin Moed, D-Indianapolis.

Getting at root cause

Of course, the root of the abandonment problem is that residents fall into foreclosure in the first place.

In 2010, the federal government set up the Housing Finance Agency Innovation Fund for Hardest Hit Markets, which distributes money to the states. Indiana has been awarded $222 million and is focusing on low- to moderate-income homeowners statewide who’ve fallen behind on loans due to unemployment and who don’t qualify for existing loan modifications.

The state has looked at using a portion of that money to demolish abandoned homes that aren’t cost-effective to repair. But the money mostly goes to help homeowners, through initiatives such as Indiana Foreclosure Prevention Network, which has an unemployment bridge loan program. It also offers legal resources for homeowners facing foreclosure.

Indiana’s foreclosure problems didn’t begin with the Great Recession, however. Much of it can be traced to downsizing in the state’s big manufacturing sector, particularly since the mid-1990s, DeHaven said.

In 2009, the Indiana General Assembly passed legislation requiring entitles who received a foreclosure notice to participate in a settlement conference with their lender as a way to avert foreclosure.•

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