Saving Lakewood's Housing Stock

[David Anderson]

Here’s a story regarding one of the many bank owned heavily dilapidated houses here in Lakewood.

My sister and law and her husband (newlyweds) are looking for their first home. They aren’t afraid of a challenge and were shown a house on the west side of Carabel, just south of Delaware. It requires major surgery and can’t be moved into until the bathrooms are replaced, at least. Any owner would be required to live elsewhere for some time while initial repairs are made. The place is a complete wreck including the yard.

It’s listed at $52,000 but requires at least $60,000 in repairs. The bank has twice turned down offers of $20,000 from other folks interested in saving the house. (It's hard to believe that some banks are turning down offers, but, apparently, some are.)

So, it sits as an eyesore, wasting away, collapsing into itself while being overtaken by the landscaping and further eroding the values of the surrounding properties. Again, it’s just south of Deleware on Carabel, two blocks from Hayes Elementary. Walk or drive by to take a look for yourself.

What can be done to compel the banks to fix violations or sell properties to qualified owners? (Cleveland’s Judge Pianka is pushing at banks in new directions through his housing court.) What capacity exists here in Lakewood’s local government to get these houses in the hands of investors and/or potential neighbors?

Let’s have a real conversation here about saving Lakewood’s housing stock (our biggest asset) and its future.

[Jim DeVito]

That fire burnt house on Webb has been torn down. The lot looks much nicer now. It will make a grate addition to the neighbors land or just some nice city owned green space. ( I am not sure who has the land now. ) So I guess the question is at what point does the banks sell it to the city for a dollar? Does it need to be fire damaged? Then when does the city decide it is a danger to the public and tear it down.

I like my idea... Offer builders prominent advertising space (for a limited time) to offset the cost of tearing down tease craptastic homes.

[Jerry Ritcey]

I heard a good analogy to the situation on NPR the other day (I think on Marketplace?) Imagine you bought a watch for $1000. But now it's only worth $400 if you sold it today. Then you'd have to write a loss of $600. But if you keep it, continue to wear it, you don't have to write off a loss yet. So the banks have an incentive to hold onto properties in hopes they gain value eventually. They don't have to write off anything just because it's sitting there looking bad.

[David Anderson]

That is an interestingly scary analogy, Jerry. Not terribly inspiring, but ...

So, I don’t completely agree with the notion that banks have no incentive to sell if the price is close to $0 – there are still taxes and the contracting-out of the potential sales not to mention the debt on the books. There is also the prospect of municipalities being able to fine the faceless/nameless banks hundreds of thousands until their holdings are brought up to code.

However, why wouldn’t banks just want to get rid of a headache? Just be done with it, take the loss and let them go one at a time already. This is the real difference between an economist and an accountant. The economist leaves the crappy $8 movie after 30-minutes because he/she knows the sunk cost is gone and why spend another 60-minutes in a losing proposition. The accountant looks at the $8 in sunk costs and refuses to leave hoping that the movie will, somehow, get better during the next 60-minutes. (From a guy who should have walked out during "Ed TV", they never do).

I don’t think for a moment that the bank knucklehead who turned down two $20,000 offers for a property listed at $50,000 that requires $60,000 before an occupancy permit would be provided has any idea just how bad this and other holdings are in. There is no way he/she has ever seen this place.

Perhaps someone in the Mayor’s office could create a two-page profile on the worst houses complete with (1) inside and outside pictures (2) a quick punch list of what is needed for an occupancy permit, capped off with (3) a check box indicating whether or not the house is inhabitable.

Finally, the Mayor could say, “and if you refuse a qualified offer to sell this property our fair city will have no choice but to enforce housing code violations and associated penalties as we do with all noncompliant Lakewood homeowners.”

These could be “marketed” to those at the banks making the decisions to hold out for a market upturn.

Imagine a bank twice turning down $20,000 for a completely dilapidated house where the roof will likely not make it through the winter in hopes of getting $40,000 when the market turns. What a load of audacious, idiotic crap.

[Will Brown]

Banks aren't in the business of maintaining property, so they certainly have an incentive to sell. But at the same time, they aren't in the business of enriching speculators, and I doubt anyone who offered $20,000 for the property is at all interested in maintaining the housing stock; they are interested in doing the least repairs they can get away with and turning a healthy profit.

Perhaps the bank is alert enough to know that similarly distressed properties (I have the parcel numbers if you are really interested) have been sold recently for prices just over $50,000, to people who did some repairs on them. Given that fact, the bank's position does not seem unreasonable.

Some of the figures tossed around here are questionable. Where does the $60,000 figure come from? What would it cost to made the home habitable, not pristine? We won't know that until someone actually does the work.

There is a silver lining to this. The county is in the process pf adjusting property values for tax purposes, and some sales at very low prices should provide good evidence for the rest of us to use in asking for a lower evaluation that they seem to be offering. That doesn't auger well for the municipal budget.

[David Anderson]

Good points, Will.

The $60,000 figure is a best guestimate of replacing all the major systems - electric, furnace, A.C. - and the needed rooms - kitchen and bath.

You are right that distressed properties are being sold for just over $50,000. However, they are not choosing this one. Maybe $20,000 is too low but it's not moving at $50,000.

As far as the speculator who wants to invest the bare minimum in repairs and turn a profit, well, that's where Lakewood's department of housing steps in. Conducting a thorough point of sale inspection complete with every code violation for which the new owner must assume and take responsibility is critical. Also, permits must be pulled - meaning that plans must be submitted and approved - for major room rebuilds and repairs. The POS inspection and permit process make up the quality control system. (I will not for a minute bemoan "speculators" who buy low, invest in repairs and sell for a profit. In fact, this type of activity should be encouraged.)

Again, though, can/is Lakewood issuing code violations to owners (banks or private) of severely distressed properties?

[Charlie Page]

That fire burnt house on Webb has been torn down. The lot looks much nicer now. It will make a grate addition to the neighbors land or just some nice city owned green space.

Here's a couple pics of the tear down of that house on Webb. I happened to be passing by while taking the kids to the Lakewood Family Room last week.

Webb1.jpg (43.95 KiB) Viewed 4287 times

Webb2.jpg (33.86 KiB) Viewed 4287 times

[Dan Shields]

Perhaps the bank is alert enough to know that similarly distressed properties (I have the parcel numbers if you are really interested) have been sold recently for prices just over $50,000, to people who did some repairs on them. Given that fact, the bank's position does not seem unreasonable.

Good points, all. The problem is ALL the banks are VERY alert. They know they are in the middle of this foreclosure mess, however it was created, or whoever is responsible. On the one hand, they don't want to sell their distressed housing stock too low, on the other they won't cooperate on short sales because they don't want to admit that they are legally responsible for creating the financial crisis. So they sit on them. The only movement I have seen has been in Cleveland, in Judge Pianka's Housing Court. He has ordered the banks to maintain and keep up the properties they own, so that they don't sit dilapidated. But that decision came only after a Cleveland housing advocacy group, Cleveland Housing Network, brought a lawsuit - and for now all of his rulings are under appeal. I think the best bet for Lakewood is strict housing code enforcement coupled with the first time homeowner incentive, to move any empty, foreclosed houses.

[David Anderson]

I agree, Dan. Holders of empty, foreclosed properties must be “encouraged” to sell, even if the encouragement is negative in tone and action (i.e. fines and penalties for not keeping properties up to code.

However, Dan, I read a suggestion in your response that perhaps a Lakewood Housing Network should be established to file suit against the holders of one or more parcels in order to get the ball rolling.

Does anyone have any ideas on how we could read that lawsuit filed in Cleveland’s Housing Court by the Cleveland Housing Network?

[Donald Farris]

Hi,
It's amazing how banks have screwed homeowners over and over with the only effect being the Federal Gov't has thrown more money at them than I can honestly comprehend.

Here's a story from today's PD that shows how badly some of these banks behave. They are locking up homes in a legal quagmire and then walking away from them to leave a even larger mess for prior homeowners and those that live nearby. See: http://blog.cleveland.com/metro/2009/07/bank_walkaways_from_foreclosed.html

[David Anderson]

Yes, that is quite an amazing article, Don.

I wonder how many Lakewood homes can be labeled as “completely foreclosed/bank owned” versus “in the foreclosure process.” Maybe there are also sub-categories.

It seems that if a home is “completely bank owned” then the bank would want to sell it as they are on the hook for property taxes, maintenance, insurance, etc. However, it seems the “in the foreclosure process” is when the delays, decay and messiness creep in.

The homeowner may feel he/she is off the hook if the foreclosure is filed and the process begins. But, if the foreclosure is never completed or the bank backs away, then taxes go unpaid, repairs are deferred, mortgage payments continue to pile up and the property simply can’t be sold because someone would have to assume all that debt.

Ugh.

I guess I just need some confidence that our city has a reasonably effective strategy in dealing with this mess.

[David Anderson]

Yes, that is quite an amazing article, Don.

I wonder how many Lakewood homes can be labeled as “completely foreclosed/bank owned” versus “in the foreclosure process.” Maybe there are also sub-categories.

It seems that if a home is “completely bank owned” then the bank would want to sell it as they are on the hook for property taxes, maintenance, insurance, etc. However, it seems the “in the foreclosure process” is when the delays, decay and messiness creep in.

The homeowner may feel he/she is off the hook if the foreclosure is filed and the process begins. But, if the foreclosure is never completed or the bank backs away, then taxes go unpaid, repairs are deferred, mortgage payments continue to pile up and the property simply can’t be sold because someone would have to assume all that debt.

Ugh.

I guess I just need some confidence that our city has a reasonably effective strategy in dealing with this mess. The bottom line, I guess, is that we need to get properties into the hands of responsible owners - be it a bank or an individual.

[Bill Call]

Here’s a story regarding one of the many bank owned heavily dilapidated houses here in Lakewood.

I accept your premise that the City needs a comprehensive housing policy. However, I think a little perspective is in order.

There are about 28,750 housing units in Lakewood. Some sources vary so that is an approximation.

From January 1st through July 17th there were approximately 207 foreclosures in Lakewood.

From January 1st through July 17th of 2006 there were approximately 77 foreclosures in Lakewood.

Given the state of the economy, the housing bubble, the overall decline in population in Northeast Ohio and destructive government policy Lakewood isn't doing so bad.

Many of the foreclosed houses are those that have been neglected for years and need $50,000 in repairs and improvements. This current housing "crisis" is more an opportunity than a crisis. Houses that needed that kind of improvent were never going to get it in the previous market. Even a distressed house was worth more every year.

In 2006 the City had approximately 1,492 vacant properties. In 2009 there are now about 1,778. That includes apartment vacancies, second home vacancies, vacation vacancies (long) and other reasons that keep a normal vacancy rate of about 7% for apartments and 1.5% for single family homes. Lakewood is doing much better than other cities across the country and most cities in Cuyahoga County.

It has long been my contention that Lakewood has about 750 or so too many housing units. I think we all have our favorite candidates for demolition in mind. However, that leaves 28,000 or so really fine homes.

This "crisis" is an opportunity. Can we take advantage of it?

[Stan Austin]

Bill--- I agree with your contentions that 1) there is an oversupply of housing units not only in Lakewood but in the larger Northeast Ohio area, and, 2) that some structures are too far on the downside of economical restorability.
But the quandary as I see it is that these properties are located randomly, thereby making any kind of physical desirability for new development problematic.
I know you have espoused a larger kind of redevelopment for certain problem areas. But, how to do that if in fact the problem properties are random and unconcentrated as I contend?
Stan

[David Anderson]

Bill -

There seems to be at least two categories of "properties in crisis": (1) houses that have gone completely through the foreclosure process and (2) houses currently somewhere in the foreclosure process. I am not sure whether the 207 foreclosures you cited are completed or in process. Can you further define the 207 number a bit? Also, how can the vacancy rate statistics you provide be anything but lagging indicators. How can we determine our vacancy rates real time?

I couldn't agree more about the need to place this issue in context. Your previous post put forward a 300% increase in the foreclosure rate from 2006. What if this isn't as bad as it gets?

Finally, yes, I believe Lakewood needs a comprehensive housing policy. However, I am open minded to thinking that one exists and I just don't know about it.


Stan -

I do not agree that there is an oversupply of housing units in Lakewood. I do believe, however, that there is an oversupply of poorly maintained houses/properties in Lakewood.

You stated perfectly the fact that these properties are, for the most part, randomly located throughout this great city. We can't demolish all of them. (How many microparks can one city maintain?) Rather, we need to get these into the hands of responsible owners to attract at or above average rent and sales prices (and taxes from employed renters/owners) or we are all going to be paying higher local taxes in the future (i.e. the cost to maintain sewer and water infrastructure will remain largely the same even if Lakewood's number of housing units and total population decreases by 10%).


If a comprehensive housing policy does not exist, maybe one of our at-large council candidates will run on the platform of being Lakewood's housing stock czar - one who leads the administration and city to protect our largest asset and into the opportunies this situation provides.

I'm rambling now. Sorry.

I look forward to your additional thoughts Bill and Stan.