Louisville's foreclosure crisis has swollen the number of vacant properties in the city to between six- and eight-thousand (no one can say for sure). Three things are for sure, though. Vacant properties drive down the value of surrounding homes, erode neighborhoods, and contribute mightily to the diminution of property tax revenues in the River City. Louisville's response, both in the past and today, has been and promises to be ineffective to prevent banks from unnecessarily wasting our housing stock.
A recent C-J article described howout-of-state banks owe the city more than $200,000 in fines. I have to admit: when I read that article I thought, "Is that all?"
The house's owner owes Louisville Metro Government hundreds of dollars in fines and fees, along with $56,000 for 16 other properties around town to which it holds title. That owner is New York-based Citibank, one of nine financial institutions that owe Louisville Metro Government $242,000 in fines and fees for property maintenance violations at vacant houses –— money that the city likely will never collect.
Citibank owns 17 vacant properties that they continue to fail to maintain. The cost of this should be much greater than $56, 000 in unenforceable fines. Indeed, until the cost is greater, out of state banks will have few incentives not to foreclose and decide not to invest in "unprofitable" properties here in Louisville.
A recent report from the National Housing Institute articulated a multi-pronged approach that hard-hit areas like Cleveland are taking to avoid the blight of vacant properties. The key first step was to "change the economics of owning vacant property." This involved demolishing five times (200 to 1000) as many lots in 2007 as Cleveland did in 2006 along with levying stiff (read: high six figures) fines against irresponsible corporate investors for failure to maintain their property. The report's conclusion lays out the steps Louisville must take to avoid the loss of entire neighborhoods to blight imposed by out-of-state banks.
First, ramp up code enforcement to control the ownership and irresponsible transfer of post-foreclosure vacant property. In other words, change the economics of owning vacant property. Second, while fighting the immediate battle, be forward-thinking and start planning ahead for the sustainable reuse of accumulating vacant property. Third, and critically important, establish an entity, such as a land bank, that can receive and responsibly hold vacant property. It should be noted that any land bank can only be useful if it has the proper financial resources to undertake this task. Linking land banks to excess spin-off property tax revenue, as first developed by the Genesse County Land Bank, may be the single most important innovation in urban redevelopment in recent years.
One thing not recommended by the National Housing Institute report: shaming banks into paying their fines. This is the approach recently proposed by some our Louisville's most well-intentioned lawmakers. The lawmakers assembled a list of the banks who owe the city fines on their vacant and abandoned properties and sought to publish it in the Louisville Courier-Journal.
The idea is quaint. It is based on the old paradigm of mortgage lending: a belief that your banker is someone who lives in your community and cares about what happens here. For the most part, he (or she) does not. Jamie Dimon will not be in the congregation on Sunday.
A house sits vacant in Louisville
Citibank is not Stockyards Bank and Trust. Wells Fargo is not King Southern Bank.
Wall Street firms have securitized over eighty percent of all home loans in America, collecting them into massive trusts in which global investors can then buy shares. The creators of securitized trusts, the investors in securitized trusts, they do not care about a vacant property in Louisville. They care about their bottom line.
As corporations (out-of-state corporations), they cannot be shamed--they have no conscience. The only way they will take responsibility for their properties in Louisville is if Louisville makes it in the banks' financial interest to take responsibility.
For the last two years, I have been working on the front-end of the vacant property problem: defending homeowners from foreclosure and trying to prevent properties from being vacant in the first place. One of the things on which I want to focus next is what to do about the fallout from the foreclosure crisis: the thousands of vacant properties that continue to plague our city. I will write about solutions other cities are trying and ways to make Louisville's land bank more effective. (Hint: the NHI recommended "proper financial resources.")
Louisville's inadequate response to its foreclosure crisis has created a second, more enduring crisis: a growing number of vacant and abandoned properties. The crisis of abandoned properties harms blameless neighbors by devaluing their homes and inviting crime into their communities. Without bold action, this second crisis threatens to undermine the integrity and livability of entire neighborhoods. A quick look at the location of these vacant properties reveals that this issue, like so many, is not just an economic issue, but a civil rights issue, as well.