By Greg Bordonaro
May 31, 2009
 
The state Senate has passed legislation designed to protect Connecticut
neighborhoods from the disrepair and blight of uninhabited foreclosed
properties and hold financial institutions that own those homes
responsible for their repair.

Senate Bill 951, which passed the Senate by a 36-0 vote, creates a
registration system for tracking the owners of uninhabited one- to
four-family dwellings obtained by strict foreclosure or foreclosure by
sale.

It also allows municipalities to enforce local or state ordinances
that would require financial institutions that own the foreclosed
properties to repair or maintain them if they become blighted.

Currently, no such law or requirement exists.

State Sen. Bob Duff, D-Norwalk, who sponsored the legislation, said
it is necessary to hold real estate owners accountable for the
condition of foreclosed properties.

“Blight is an extremely damaging byproduct of home foreclosures,” said Duff, who is also co-chair of the banks committee.

Duff said that when foreclosed homes sit uninhabited, they start to
fall apart because their structures usually aren’t maintained. He also
said yards go unattended and vandals attack buildings, which “degrades
the quality of life in our neighborhoods, reduces neighboring home
values and leads to violence and crime.”

“This is not just a cosmetic issue; it’s a serious public safety
concern,” Duff added. “This gives municipalities a way to fight blight
and maintain neighborhoods.”

Under the proposal, foreclosed properties would have to be
registered with the municipality’s town clerk or with the Mortgage
Electronic Registration Systems, a popular mortgage tracking system
currently being used by the industry.

Those who register with a municipality would be required to pay a
$100 fee and provide personal contact information for themselves and
any local property maintenance company responsible for the security and
maintenance of the vacant residential property.

One proponent of the bill has been Sameera Fazili, a Ludwig
Community Development Fellow and a clinical lecturer of law at the Yale
Law School.

In written testimony to the banks committee earlier this year,
Fazili said the “management of vacant properties is critical to help
prevent both the crime that accompanies abandoned properties and the
rapid decline in local real estate values from blight.”

One of the overlooked consequences of home foreclosures is the
negative impact it has on surrounding property values, Fazili wrote.

A study by Geoff Smith, vice president of the Woodstock Institute,
a policy group in Chicago, found that each foreclosure within an eighth
of a mile of a single-family home results in a 0.9 percent decline in
the home’s value.

With the widespread number of foreclosures in Connecticut and
across the country, the situation has gotten severe for many
homeowners.

According to the Mortgage Bankers Association, Connecticut had
28,285 home mortgages, or about 5.3 percent of all home loans, either
in foreclosure or 90 days past due as of March 31.

At the same time, single-family median home prices in Connecticut
plummeted nearly 18 percent in the first quarter of 2009, to $220,000
from $267,000 in the first quarter of 2008, according to Boston real
estate publisher The Warren Group.

That was the steepest drop in home prices since The Warren Group began tracking the data in 1987.

Monthly median home prices have been falling by double-digit percentages year-over-year for six consecutive months.

While maintaining foreclosed properties can help prevent or
minimize a drop in home prices, properties owned by banks sometimes go
ignored.

That’s because most mortgages have been securitized, and when they
are placed in foreclosure, they are usually transferred to a
securitization trust, Fazili said.

Those trusts are typically managed by investment banks, which have
portfolios of thousands of vacant properties scattered throughout
country.

When local city code officials attempt to contact the owners to
have properties kept up to code, they are typically unable to reach any
person with authority to actually manage the building or remedy any
defects.

As a result, properties can go untouched for weeks or even months.

Duff said by creating a tracking mechanism the lawful owners of
foreclosed properties “can be easily identified and held accountable.”

 
 
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