(AP Photo/Mike Groll)
Are there more zombies in our city than ever before, or are we just paying more attention to them?
“Zombie properties” is a clever name to describe residential buildings that are neither alive nor dead: They are caught in the limbo of an incomplete foreclosure. The real estate title stayed with the homeowner even after foreclosure proceedings began. The lender walked away — in some cases to avoid having the risk of a low-value property on the books. Homeowners walked away thinking the property was no longer theirs.
With no one explicitly responsible for the property, the zombie house falls into vacancy and decay.
As the National Community Stabilization Trust’s Annie Carvalho describes it, even though the national mortgage settlement has made incomplete foreclosures less common, cities, especially in the Midwest, still struggle with those that were abandoned before the settlement was reached. “It’s still very difficult for folks locally to identify where they can go to make something happen to a property,” Carvalho says.
The longer a house is empty, the more dilapidated it gets. That’s partly why it now seems like zombies are everywhere.
Their ubiquity is somewhat misleading, in part because the zombie label is sometimes used to describe any kind of empty property. Whole neighborhoods, of course, particularly in the Northeast and Midwest, long ago saw disinvestment and were effectively abandoned because of suburban flight that began in the 1950s.
“The thing that happened because of the housing crisis [in 2007-2008] is that this started trickling into different neighborhoods. The problem just ballooned,” Carvalho says. (Carvalho and other experts talked about the very visible problem at the Center for Community Progress’ Reclaiming Vacant Properties conference in Detroit last week.)
The memorable “zombie” branding blurs some of the nuances of the technical term, says the Housing Partnership Network’s Danielle Samalin — vacancy does not necessarily mean a foreclosure is in limbo. But more pointedly, “one reason we may be hearing more about zombie properties than in years past is because one of the worst enemies to ending the foreclosure crisis is time,” Samalin says. “With time, delinquencies become worse, turn into defaults, into foreclosure, and then for a variety of reasons, people may walk away from their homes. … I have the sense that this dynamic of properties in a limbo foreclosure state has become the latest mutation at this late point in the foreclosure crisis.”
The result? Demoralized homeowners, the debilitating infection of blight on a community, and no easy way to push property into the hands of somebody who will take responsibility for it.
Since the mortgage crisis, says Samalin, the community development sector has been working with renewed fervor (and more visibility) to respond to the plague of zombies. The “key to effective solutions is that we understand that this foreclosure crisis is not steady state,” Samalin says. “As time goes on, the virus mutates and we need to find new solutions.” That means strategies that are both preventive and curative.
HPN, for example, takes the preventive approach by counseling its members around the nation to stave off foreclosure. Working with two of its members in Chicago and Cleveland, and other partners, it developed the Resolution Specialist Program to help develop loan modifications that can assist homeowners so that they can stay in their homes. “We have found that when high-quality, intensive nonprofit counselors are integrated into the loss mitigation process, rather than as an adjunct social service provider, the outcomes improve for all stakeholders,” Samalin says.
HPN also is working with the NCST on the ReClaim Project, which interrupts the “not-mine-not-yours” dynamic of zombie properties with an entity that seizes responsibility for them. ReClaim acquires “very low-value distressed assets” that are likely to become zombies, often through a donation that includes a cash contribution to cover program expenses. HPN’s Resolution Specialist Program is integrated into the process, in case homeowners can still be found and contacted in the hopes of completely avoiding foreclosure. But if that’s not possible, and a foreclosure needs to proceed to get a resolution on the property, ReClaim is a way to expedite it, so that it can get back into local hands as quickly as possible. In many states, Carvalho said, foreclosures can drag on for years, leading to neighborhood instability and a vacant property that has a less and less chance of being rehabilitated. In worst-case scenarios, the program also expedites a demolition.
ReClaim is a national program, but it focuses on specific communities. Carvalho mentions parts of Florida and large Midwestern cities like Indianapolis, Detroit, Cleveland and Columbus.
A home sits vacant in Youngstown, Ohio. The city passed bold legislation to combat “zombie properties.” (AP/Photo Mark Stahl)
Samalin describes ReClaim as “deeply rooted in local place.” It succeeds “because of an ability to balance national scale and efficiency with deep local engagement,” she said. “We are able to work with large banks and servicers because of our national platform, and yet our goal is to enable community control of properties.”
But it’s not just outside programs that are fighting zombie properties. Cities, too, are stepping up.
Baltimore has streamlined its code enforcement program through the Vacants to Value program, targeting vacant properties in neighborhoods that are on the “tipping point” of blight. Enforcement pushes owners who are in code violation — creating a real health and safety hazard — to take care of it. If they don’t, the property goes into receivership so that the city can do the repairs themselves. With continued negligence by the owner, the matters ends up in a courtroom, with the city petitioning for an ownership transfer. Then, they put the property up for auction, pre-screening potential buyers to be sure that they can begin work on the property within 12 months.
Tennessee’s Shelby County, which includes Memphis, recently enacted a similar program, and Milwaukee is also exploring options to obtain deteriorating vacant homes faster. In all cases, this gives the public sector some power to take care of property even before it is foreclosed upon and a title is officially transferred. And in Wisconsin, the state Supreme Court recently ruled unanimously that any lender that files a foreclosure action is obliged to complete the process and sell the property before it is abandoned.
Youngstown, Ohio, though, has the boldest plan. Through legislation passed in 2013, it created a foreclosure bond program: Lenders, including the big banks, must put up $10,000 in bond whenever they issue a mortgage in the city. If that property ends up deteriorating in a zombie state, then the city can use that money to maintain and repair the house, or if necessary, to demolish it. As Samalin says, it is “a legal and grassroots approach to make banks pay for the damage to the community of vacant, abandoned properties” — not with a fine, but as a pre-emptive incentive. After all, if the bank keeps up its responsibilities, it will recoup its money.
While initially, according to Carvalho, banks were not enthusiastic about the bond program, “most banks just got over it and are dealing with it now. It’s an effective way of keeping the process moving,” Carvalho says. “Otherwise, the city has no resource or path to hold anyone accountable.” And fears that banks would be reluctant to lend to homeowners in Youngstown, because of the added $10,000 risk on the back end of the mortgage, have not come to bear.
It’s innovative work like this that gives Samalin hope that zombie properties are not an inevitable part of the urban landscape. The next great leap, she says, is developing more accessible language and stories that translate the intricacies of the housing crisis and its legacy to the public. “I suppose that’s why it’s a good thing the term zombie is so catchy,” she said. “It gets the public’s attention, and spurs a real desire to collectively fight to end this crisis.”
This post is part of a 10-part series underwritten by the Center for Community Progress. Read all posts in the series here.