Dirty Deeds

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Homeowners may flee, but banks still remain liens on abandoned houses Michael Todd

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Even far from the Rust Belt, in places where empty houses retain significant value, the lending industry seems to have trouble preserving its collateral when homes are abandoned during foreclosure. In Chula Vista, a number of houses have been trashed by college students who have held parties in the vacant properties. In other cases, pillagers pull up in rental trucks to cart away cabinets, wood flooring, and fixtures stripped from the homes. But in October, an ordinance went into effect requiring lenders to register and maintain houses that have been abandoned during foreclosure.

Compliance, says Chula Vista code enforcement manager Doug Leeper, has been spotty. "What I need them to do is keep the water on and keep the lawn green," he says, noting that the first sign of abandonment is often a yard that has turned brown and a pool that has gone murky green.

That slide into decrepitude is exactly what Cooper is trying to head off in Buffalo. In February, she joined the city's law department, where one of her duties is prosecuting banks. She and Nowak each say their main objective is not collecting fines but bringing banks to the table to try to find constructive solutions for dealing with abandoned property. That doesn't mean borrowers are off the hook. Cooper typically charges both borrowers and lenders, and Nowak may fine homeowners or sentence them to community service. "Can both be responsible?" asks Cooper. "Absolutely."

The approach in Buffalo is paying dividends. In a case on Dec. 17, attorney Cercone addressed the status of a house that had gone into foreclosure in 2006. Cercone was representing JPMorgan Chase and Ocwen Loan Servicing (which in turn were representatives of a securitized trust that had purchased the mortgage). Cercone submitted an affidavit showing that Ocwen, which had been cited for violations in December, 2006, had spent $30,000 to repair the property, including scraping lead paint from the entire house. In September, the affidavit notes, JP Morgan Chase sold the property at a loss of $19,500, not including the cost of repairs. "The bank in this case dealt with the property as well as could be done under the circumstances," Nowak said from the bench, and he agreed not to impose any fines.

TORTUOUS TRAILS

Still, even with novel and aggressive tactics, the path to resolution for many properties in Buffalo can be tortuous and protracted. A house at 1941 Niagara St.—one of dozens of properties that Cooper examined as a graduate studenthas yet to see its final chapter, though it may be close.

In 1998, Elizabeth M. Manuel obtained a $34,500 mortgage on the property from IMC Mortgage (since acquired by Citibank). By 2002, the loan had been sold into a securitization trust administered by Chase Manhattan (now JPMorgan Chase) as trustee. It also went into default, and Chase began foreclosure proceedings. In a court filing, Manuel (who could not be located for comment) said she left the home while the foreclosure action was pending. More than five years later, though, the title remains in her name. The house, although still standing, has become a fire-gutted wreck.

In May 2007, Nowak issued a default judgment against Chase for $9,000. But these cases can be notoriously difficult to untangle. Thomas A. Kelly, a spokesman for the bank, notes that Chase sold its trustee business to the Bank of New York Mellon (BK) in October, 2006, and couldn't locate anyone at Chase able to comment. But he reiterates the industry view that Chase can't be held responsible for maintaining a property it never owned. He acknowledges that if a home didn't seem worth taking as collateral, the bank may have made a decision to "just walk away."

The value of 1941 Niagara, estimate city assessors, is $4,500, of which $4,300 represents the value of the land. The home, Cooper says, is slated for "imminent" demolition.

Join a debate about who should pay for repairing foreclosed property.

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