naked capitalism

There’s a sad little story in the “NY/Region” section of the New York Times, which illustrates a not often enough discussed sort of wreckage resulting from the housing mess: that of deaths resulting from foreclosures.

Think I’m exaggerating? There have been cases of suicides, or murder/suicides of people losing their homes. But that can’t necessarily be attributed to foreclosure per se, but of personal financial disaster, with the foreclosure being the literally fatal blow. So while one can attribute their deaths to the financial crisis and therefore to the reckless behavior of major financial firms, it’s hard to pin it on foreclosures per se.

But there are some deaths that can, indisputably, be blamed on foreclosures or more specifically, the negligent management of foreclosed properties. No one should ever die because a bank failed to take proper care of a home it seized. This, just like banks seizing houses that have no mortgages on them, should simply never happen. But it is in fact taking place.

As anyone who lives in a part of the country hard-hit by foreclosures, the banks (more accurately, the servicers) are often derelict in their duties as property managers. When the servicer, acting on behalf of the securitization, takes possession of a home, it becomes responsible for it. It must pay property taxes and comply with local rules. In theory, the servicer should manage the home so as to maximize its value on behalf of the investor. That means securing the property (for instance, taking steps to make sure squatters don’t move in) and maintaining it (mowing the grass, either draining water pipes or providing heat at a minimal level in the winter to preserve the plumbing system).

But the evidence is strong that servicers do a terrible job of property management. Ratty-looking lawns, although annoying to neighbors, are the mildest symptom of neglect. News stories and reader reports tell of foreclosed homes having appliances removed and even stripped of copper.

Any why should they bother? They don’t get paid to realize a good sales price for houses their investors wind up owning. They typically fob the job off onto default service managers, like Lender Processing Services, who in turn hire local companies to manage the properties. But oversight of these firms is weak to non-existant.

The hazards that neglected properties represent are numerous. At least two toddler deaths resulted from them drowning in pools of foreclosed homes. In one, a widely discussed case in Florida, local laws that required the pool have safety barriers and spring-locked barriers were violated. And unmanaged pools represent lesser public health hazards, attracting mosquitoes and vermin.

The New York City deaths are as sad and unnecessary. Domingo Cedano bought a three family home in Bronx with no equity in late 2005. The building had been foreclosed upon but the city records still showed it as being owned by Cedano (it isn’t clear but one would imagine that the onus was on the new owner, the trustee acting on behalf of the securitization trust, to update teh records. But one can see why they might choose not to: to create the impression that Cedano was still responsible for property taxes).

Regardless of the state of the city records, the current owner is responsible for building maintenance. The trustee, Bank of New York, had hired Vericrest Financial to mange the property. They appear to have been missing in action. And the situation devolved:

As of one year ago this month, a state law makes it clear that the lenders are responsible for a property once it has gone into the foreclosure process.

“The legislation required that once a foreclosure takes place, it’s up to the bank or whoever foreclosed on the property to take care of it, maintain it, make sure it’s safe,” said State Senator Jeffrey D. Klein, a Bronx Democrat who sponsored the bill. “If not, the local building department can go in and make the proper repairs.”

That’s not what happened at 2321 Prospect.

In response to complaints about illegal subdivisions and other problems at the building, city inspectors went to the building 10 times, but they were never able to get in and they left notices outside. The city also mailed notices to Mr. Cedano, who was listed as the owner of the property, said Tony Sclafani, a spokesman for the city’s Buildings Department.

A fire tore through the building on Monday. Illegal walls on the third floor blocked access of one unit to the fire escape. A couple and their twelve year old son died in the blaze.

So when the public at large complains of banks letting severely delinquent borrowers stay in homes by holding off on foreclosures, consider: given how neglectful banks are as property managers, they may actually save a life or two by keeping the soon-to-be-dispossed owners in place a tad longer than they might otherwise.