Should banks pay for the cost of foreclosure upkeep?

In 2007, at the beginning of the housing crisis, Chula Vista, Calif., was the first city to require banks and mortgage owners to pay the city for the cost of foreclosing on a home. Could the idea spread to more Twin Cities’ suburbs?

Tomorrow, the group, Our Future Minnesota, will petition the Coon Rapids City Council to adopt an ordinance, requiring the banks to pay a fee to the city, to offset the cost of foreclosed homes in the city. There’s no indication the city is interested in instituting such a fee.

But the cost of an abandoned home is significant, argues Emily Bisek, a spokesperson for the group, which says the typical foreclosure can cost local governments $19,000 for the increased cost of safety inspections, response from police and fire calls, and the trash cleanup of properties.

“Coon Rapids charges only after they’ve been called out to a property three times, she says. “Then they charge $600. The first two are free.”

In a white paper released today, the group said the number of complaints for unkempt properties in Coon Rapids jumped 172 to a high of 1,244, from 2005 to 2009. “The number of times the city had to send out a crew to clean up unkempt properties went from 11 to 374, forcing the city to expend scarce human and fiscal resources. Between 2008 and 2011, the number of unsecured homes in Coon Rapids increased nearly 350%,” it said.

She estimates it’s cost the suburb $35 million for 3,900 foreclosures in the last four years. She adds that a foreclosed home can lower the value of another home with an eighth of a mile by $2,000.

“What we’ve seen in other cities, including Minneapolis, is a registry process,” Bisek says. The process allows the city to know who owns the abandoned property, which has historically has been a frustrating endeavor for cities. It was too easy to hide who actually owned the mortgage.

Minneapolis charges $6,948 to mortgage owners, an amount that increases each year.

Richfield passed a similar ordinance last year. It assesses mortgage owners a $100 fee for a home that’s been vacant less than a year, $200 for those vacant more than a year. Commercial property owners pay anywhere from $500 to $1,250 a year.

Chicago instituted an ordinance last November requiring mortgage holders to pay a one-time fee of $500. The mortgage holder has to keep the yard free of trash, the grass cut and the property secured or face a daily fine of $1,000.

The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, has since filed a federal suit against the ordinance. Since the suit was filed, the city has loosened the ordinance that applied to all vacant properties, not just those in foreclosure.

  • vjacobsen

    The Richfield ordinance was a good step, but it needs to go further. There are 2 foreclosed houses one block away that have been vacant since we moved here 3 years ago. The banks need to be penalized for letting them sit vacant for this long. My husband I did see some kids go into a vacant house last winter with paper bags (of booze, we assume), and had to call the police. The 3-4 police cars and the officers must not have been cheap.

    That reminds me. One of them needs to have the grass mowed. Time to call the city…again.

  • Jim!!!

    We have a neighboring vacant house that no one seems to know who owns – apparently not that uncommon… But from whom then does the county/city extract property taxes?

  • kennedy

    If the mortgage owner evicts the resident, it seems to me that they are assuming control of the property and should pay maintenance costs. It is reasonable for those costs to include paperwork and fees to update the city records in addition to charges for city services.

  • Kevin M

    I think if the bank doesn’t pay anything to the city, then I want to see a banker out here on the north side mowing lawns and shoveling sidewalks. It’s still against city code to let your sidewalks remain icy, whether anyone lives in your house or not.

  • Tim

    In my HOA, we hold the mortgage holder responsible for the upkeep of any foreclosed properties — if they take possession, they’re expected to follow the bylaws the same as any homeowner, and they get fines levied against them if they don’t comply. We’ve only had to do that a couple of times, though — they get the hint pretty fast.

    Holding the bank/lender responsible also has the side benefit of encouraging them to sell the property sooner, rather than holding on to it for years and having it sit empty.