As anyone who reads this paper knows, foreclosures hit Colorado homeowners hard in 2007. The Colorado Division of Housing projects that there will be 37,000 foreclosures across the state when year-end figures are tabulated, a 30 percent increase from 2006 — which was a record year for foreclosures.
Hardest-hit were Adams County, with one foreclosure for every 32 households; Pueblo County, with one for every 40 households; and Weld County, with one for every 41 households,
As the subprime mortgage crisis becomes ever more urgent, much media attention has been given to the families at risk of losing their homes, to the brokers who encouraged people to take out loans they could ill afford, and to the lenders who made so many high-risk loans.
Not enough attention has been given to the harm foreclosures have on nearby neighbors, or to the challenges they pose to local governments.
According to the Center for Responsible Lending, 790,000-plus homeowners in Colorado will see their property values drop as nearby properties go into foreclosure due to subprime loans. The average drop in value of neighboring properties from such forecloses, the center says, is $2,400 each.
Local governments are directly affected, for as property values decline, so do the property taxes paid to cities, counties and school districts.
There are other costs to local governments as well. An example is the cost of policing vacant homes, which become prime targets for such criminal activities as prostitution, meth labs and drug dealing.
Vacant properties also increase local government costs for code enforcement, cleaning up debris and conducting administrative hearings. A 2005 study showed that vacant and deteriorating properties cost Chicago from $7,000 to $34,000 each. Locally, Aurora paid an estimated $454,000 to contractors to remove trash and weeds from more than 2,100 properties, according to Nancy Sheffield, director of neighborhood services.
Cities usually send the bill for cleanups to the registered owner of a property. A mortgage services company (to which property owners pay their mortgage) is often the first point of contact, but the actual owner may be a distant bank, mortgage company, private pension fund or global investor. Ryan McMaken, director of community relations for the Colorado Division of Housing, says, “Getting in contact with the actual owner is often easier said than done.” A mortgage services company may have to “just sit” on a foreclosed property until the investor/owner decides what to do.
Which helps explain why cities often have trouble collecting on cleanup costs for vacant properties. In Aurora, only about 10 percent of cleanup bills are paid within 30 days, Sheffield says. In such cases, Aurora adds a collection fee, so that when property taxes come due, the bill and fee both must be paid.
Other cities put a lien on properties that have had to be cleaned up, meaning that when the house is sold, the bill for cleanup comes due. But that process can take a long time, for as McMaken points out, most large investors are not very skilled at putting properties on the market. The sale of homes is not investors’ area of expertise, so “they move very, very slowly,” he says.
Given the scope of the problem, it’s good to see lenders and local governments working together to minimize the damage to neighborhoods and city budgets. The state Division of Housing, the city of Denver, the Federal Reserve and major area banks have come together in a Foreclosure Task Force designed to increase communication between mortgage services agencies and national and global lenders.
The task force also funds a toll-free counseling hotline (877-601-HOPE) to help people at risk of defaulting on their mortgages.
Susan Thornton (smthornton@aol.com) served 16 years on the Littleton City Council, including eight years as mayor. Her column appears twice a month.
