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How the Failure to Manage Foreclosed Homes Kills

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.

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18 comments

    1. Anonymous Jones

      I love this idea.

      Most people desperately need to live in denial that their actions have consequences.

      People who accumulate more and more resources at the expense of others necessarily leave some without enough to survive. These are the consequences of rapaciousness. I know people will guffaw and ignore this, but they are delusional. You may not believe that you should weigh these consequences very much in your decision-making, but you cannot deny their existence.

  1. R H Stoll

    Hello,
    Today you wrote:”When the servicer, acting on behalf of the securitization, takes possession of a home, it becomes responsible for it. (etc.).”

    Seeing from this side of the pond the whole problem resides in the American system of executing a foreclosure. In Europe, when an owner fails to pay on time, the bank, after some judicial procedures, may ask the tribunal to auction the property. Until the eventual buyer takes possession of his aquisition the original owner stays in it. If he was not totally under water, what the auction result exceeds the sum owned belongs to him. Thus it is in the owner/debtors interest to keep the property in shape, not in the least because he’s living there. As far as I understand from television, in the US the owner is thrown out first, and eventually the property may be sold. By that time it has been degraded because it was (unvoluntarily) abandoned.
    Regards
    RHS

  2. Goin' South

    This is a huge problem where I live, and one that is getting worse because of the behavior of the servicers.

    I’m trying to buy a foreclosure to rehab and live in, and since this project involves our adult children, we’re looking at two-deckers. There is scarcely a house awaiting the sheriff’s sale in our part of town that has NOT had the copper stripped along with most of the mechanicals. A few weeks ago, I went to check out a house that had just been set for sale. It’s back door had been sledge-hammered down, and while it was technically trespassing, I went on in to see the condition of the house. It had been used as a “party house” since it was vacated just a few days before (the hot water heaters were still there and the water was still hot). There were condoms lying on the floor. Half-eaten food and empty beer bottles were all over the place. The copper supply piping had been cut from the basement, but the wiring was surprisingly still intact.

    One can imagine living next door or across the street from such a property. The family across the street saw us to arrive to look at the house and gave us a hopeful wave. You know how they must have wanted to see this resolved ASAP.

    But the servicers like to drag things out. We were set to bid on a house a couple of months ago when it was removed from the sale list. It was the third time it had been withdrawn by the servicer: twice to “work things out with the borrower” (a slumlord who went under) and once to get a re-appraisal. On that sale day, more than half of the properties for sale were similarly removed. Only two of those were because the defendant had obtained a bankruptcy stay, the rest were at the servicer’s behest.

    I suspect that these servicers are paid on a fee-for-service basis that incentivizes them to drag things out while the neighborhoods and even the investors for whom these properties are collateral suffer.

    On top of that, the banks and Fannie are letting very few houses go at auction. They’re bidding the debt which is many times the current value of the home. They prefer to drag out the process even longer, and offer them as REOs, tacking on another couple of grand for real estate agents who do nothing and lawyers who crank out deeds and closing docs.

    It’s a racket as you’ve often demonstrated, and it’s hurting these neighborhoods terribly.

    1. White Bread

      When they drag things out – don’t they get to charge more and more fees? Isn’t this why we had the HAMP? The debt collector law firms keep getting paid the longer the thing goes on too, at least I think they do. Anyone have access, information and links to how much Fannie Mae is paying some of these law firms?

  3. kingbadger

    “with the foreclosure being the literally fatal blow.”

    Literally? Surely that isn’t a correct usage of the word. Most people who go bankrupt or get foreclosed upon don’t kill or kill themselves. Murder and suicide are acts committed by individuals, individuals who act outside the norm to an extreme degree. Many others are in the exact same situations as the murderers/suicides, but they don’t kill or kill themselves – they might think about murder or suicide, but they don’t do it. Murder and suicide are the exceptions. Many people think of killing or killing themselves themselves every year after being put in stressful circumstances, yet most do not. Most people just keep any violent thoughts inside their minds and do not act, going on through life’s stresses until a natural death ineluctably claims them.

    Recently a Princeton professor killed himself after his job was not renewed. Some people blame the university for his death, yet somehow most people who lose their jobs each year don’t kill themselves. Around a million people kill themselves each year around the world I believe, while there are 200-300 million unemployed.

    @W.C. Varones

    Blaming Greenspan for this stuff is obtuse in the extreme. Even if we’d never had the bubble or the crash there would be stuff like this going on.

    1. Leviathan

      No, most people do not kill themselves even when tragedy strikes. But Yves’ point that little is said about the devastating emotional and psychological damage this crisis is having on millions of Americans. Why is that? Is it because we are uncomfortable looking at preventable suffering? You can say that people who cannot afford their houses should be made to leave them, but is THIS is best way to go about it? We are a ridiculous people, and this is a mass failure that will haunt us for years.

    2. Pompeii

      That’s another can of worms. Stress kills, this is fact.
      There ain’t no job security in ‘Murica. Not only that, there are cheerleaders for this type of violence. This isn’t about unions necessarily, but some cultural shift has occurred where we’ve decided it’s “ok” to just take away someone’s livelihood for any reason. And as we see all over the place, you don’t have a job you lose everything. Many people who are aware of this corporate violence, and conduct it, truly believe (perhaps out of fear) that one day, they too will be rewarded for doing what they are told.

      We’ve allowed this type of degradation to enter the work force unchecked, for whatever reason we’ve listened to a bunch of idiots who sometimes call themselves conservatives. It continues to get worse, the last cabal used the GWOT to attack workers nationwide with Ministry of Truth style security clearances, simply so they could get rid of them. Who’d suppose they won’t be able to make mortgage payments after they are escorted off campus?

    3. DownSouth

      No one knows why, but under certain circumstances people turn suicidal and will play an active role in their own destruction.

      Following is a tale of what you would undoubtedly call mass suicide. And according to your “logic,” I suppose the fact that the Jews played such a significant role in their own destruction exculpates the Nazis. But keep in mind that history has not judged the passive nihilism of the Jews nearly as harshly as it has the active nihilism of the Nazis.

      As Eichmann told it, the most potent factor in the soothing of his own conscience was the simple fact that he could see no one, no one at all, who actually was against the Final Solution… Of course, he did not expect the Jews to share the general enthusiasm over their destruction, but he did expect more than compliance, he expected—-and received, to a truly extraordinary degree—-their cooperation. This was “of course the very cornerstone” of everything he did, as it had been the very cornerstone of his activities in Vienna. Without Jewish help in administrative and police work—-the final rounding up of Jews in Berlin was, as I have mentioned, done entirely by Jewish police—-there would have been either complete chaos or an impossibly sever drain on German manpower. (“There can be no doubt that, without the cooperation of the victims, it would hardly have been possible for a few thousand people, most of whom, moreover, worked in offices, to liquidate many hundreds of thousands of other people… Over the whole way to their deaths the Polish Jews got to see hardly more than a handful of Germans.” … ) … [T]he members of the Jewish Councils were as a rule the locally recognized Jewish leaders, to whom the Nazis gave enormous powers—-until they, too, were deported…

      To a Jew this role of the Jewish leaders in the destruction of their own people is undoubtedly the darkest chapter of the whole dark story… In Amsterdam as in Warsaw, in Berlin as in Budapest, Jewish officials could be trusted to compile the lists of persons and of their property, to secure money from the deportees to defray the expenses of their deportation and extermination, to keep track of vacated apartments, to supply police forces to help seize Jews and get them on trains, until, as a last gesture, they handed over the assets of the Jewish community in good order for final confiscation.
      ▬ Hannah Arendt, Eichmann in Jerusalem: A Report on the Banality of Evil

      1. Doug Terpstra

        Thanks for another perplexing piece of one of history’s darkest puzzles. I also read somewhere that, in addition to the Bush dynasty, Hitler’s primary banksters were Jewish, which may help explain the enigma of Israel today and it’s near total control of US foreign policy.

    4. W.C. Varones

      @kingbadger

      “Even if we’d never had the bubble or the crash there would be stuff like this going on.”

      Wrong. Murder/suicides and people living in dangerous conditions in poverty obviously happen every year, but it is undeniable that

      1) financial problems are a significant contributor to domestic violence and suicide
      2) suicide rates have risen in Greenspan’s crash
      3) Greenspan’s bubble and crash were major factors in the deaths of those on Greenspan’s Body Count.

      Do a little Googling on suicide rates, calls to suicide hotlines, etc. Do a little reading about the individual cases on Greenspan’s Body Count. Greenspan lured people into debt with promises of easy money and perpetually rising home prices. Many people are dead now because of that. The names on GBC are only the tip of the iceberg, as most suicides are not publicly reported in the media.

  4. Jim Haygood

    To R H Stoll’s point, the original intention of foreclosure was to vacate the property so that it could be promptly sold or rented by the successor in interest.

    In some areas in the 1930s, foreclosed properties were immediately auctioned for whatever they would bring (often pennies on the dollar). This did not result in the best value recovery, but it did obviate the problem of empty and deteriorating properties.

    Drawn-out sales of foreclosed properties again suggest that banks aren’t maximizing value recovery. But this time around, it’s because properties aren’t being quickly auctioned or sold at a market-clearing price. And why would that be? ‘Extend and pretend’ is doubtless part of the picture.

    1. R H Stoll

      >the original intention of foreclosure was to vacate the property so that it could be promptly sold or rented by the successor in interest.

      In the European system, nothing is in the way to do the same, if the bank so intends; selling as soon as possible. However, until the end of the auction the debtor continues to be the owner, with all responsibilities (closing pools)and benefits (having a roof) that come with ownership. An other advantage is that, since the procedure can be stopped any time until the sale, and in the mean time the situation is static, it very often gives time to reach an agreement between debtor and bank in which the latter accepts a lesser or delayed payment of the debt and desists of execution.
      RHS

  5. Constant Assaults

    Local Gov’mints are sometimes quick to blame the homeowners who split.

    I don’t know whether this is a.) stupidity b.) always what has happened in poorer neighborhoods but is now much more widespread c.) kickbacks/corruption because now a windfall of fees, charges are generated that could enrich friends of those in positions of authority. d.) eventually the ‘Ghetto’ which has valuable land, will be developed into some corporate vision of what “is needed”.

    There hasn’t been much discussion of this, but it is possible that massive sub prime lending was specifically intended to blight neighborhoods and chase folks off. This is frequently a more efficient way to get zoning codes changed and so forth to reward the drooling developers, particularly in old working class ‘hoods that are nearby Dubai style concrete towers.

    I’ve seen cities work with the debt collecting lawfirms, and on the local Government’s tab, they will haul away the clean out debris, get the law firms lined up for liens, water bills and so on.
    Meanwhile the victim could be in a homeless shelter, temporarily on somebody’s couch, moved in with relatives or attempting to rent an apartment. Perhaps the victim should feel a sense of pride. “I was raped, but it was all for the better”

  6. F. Beard

    The banking system killed 50-86 million in WWII alone.

    Think I’m exaggerating? Think again. The two main causes of WWII were Germany’s humiliating defeat in WWI and the Great Depression – both of which were caused by the Fed. The Fed financed US entry into WWI and Ben Bernanke has admitted the Fed is responsible for the Great Depression.

  7. F. Beard

    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. Yves Smith

    Oh how the banks set us against one another!

    They set savers against borrowers and those who can still pay their “debts” against those who can’t.

    Surely they are worthy of being cursed. Cursed be the banks then!

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