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More banks walking away from homes, adding to housing crisis
Research shows 1,896 red flag homes in Chicago appear to have been abandoned
during foreclosure process
By Mary Ellen Podmolik, Tribune reporter

January 13, 2011

A new type of property is adding to neighborhood advertisement

blight: the bank walkaway.

Research to be released Thursday, the first of its

kind locally, identifies 1,896 "red flag" homes in
Chicago — most of them are in distressed African-
American neighborhoods — that appear to have
been abandoned by mortgage servicers during the
foreclosure process, the Woodstock Institute found.

Abandoned foreclosures are increasing as mortgage

investors determine that, at sale, they can't recoup
the costs of foreclosing, securing, maintaining and
marketing a home, and they sometimes aren't
completing foreclosure actions. The property, by
then usually vacant, becomes another eyesore in
limbo along blocks where faded signs still announce
block clubs.

"The steward relationship between the servicer and the property is broken, particularly in these hard-hit
communities," said Geoff Smith, senior vice president of Woodstock, a Chicago-based research and
advocacy group. "The role of the servicer is to be the person in charge of that property's disposition.
You're seeing situations where servicers are not living up to that standard."

City neighborhoods where 80 percent of the population is African-American account for 71.1 percent of
red-flag properties, according to Woodstock.

In some cases, lenders might be skirting city rules for property upkeep even after they repossessed
properties.

Woodstock found that as of the end of September, 57.1 percent of the estimated 4,468 single-family,
likely vacant homes that became bank-owned from Jan. 1, 2006, to June 30, 2010, were not registered
with the city as vacant, as they are supposed to be.

"The whole concept of charging off creates this limbo land," said Dan Lindsey, an attorney at the Legal
Assistance Foundation of Metropolitan Chicago. "There's still a lien that can follow the borrower."

In November, a U.S. Government Accountability Office report on the frequency and impact of
abandoned foreclosures noted that Midwestern industrial cities, including Chicago, seem to bear the
brunt of bank walkaways, leaving neighborhoods in deeper distress and cities left to shoulder the
associated costs of dealing with unsafe, often unsecured homes.

The GAO report, derived from information provided by six loan servicers, found that servicers nationally
charged off loans on 46,000 properties from January 2008 to March 2010, with 60 percent of the charge-
offs occurring before an initial foreclosure filing was made. That report listed Chicago as having the
second-highest number of servicer-abandoned foreclosures nationally, behind Detroit, with 499
properties charged off during the foreclosure process. An additional 361 properties were charged off
without a foreclosure filing.

For its report, Woodstock culled data from the city's vacant properties registry, as well as buildings
identified to the city as vacant by municipal departments, foreclosure court filings made from 2006 to the
first half of 2010, foreclosure auctions and property transfers. Some of the 1,896 properties flagged by
Woodstock as likely walkaways could, in fact, still work toward a resolution in the foreclosure process,
but 40 percent of those homes had been in the foreclosure process for more than 18 months.

Woodstock believes its projections are conservative because lenders also decide to write off their
investments in properties before filing initial foreclosure actions. For only those 1,896 homes, Woodstock
pegs the cost to the city, if it needed to seize, secure and demolish them, at $36 million.

"The problem that is being caused here is costing the taxpayer a lot of money," said Richard Monocchio,
commissioner of the city's Department of Buildings. "Until the industry does much better and is more
creative, leasing back the property for a few years so people can get back on their feet, then we're going
to see more vacant buildings."

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In 2010, the city demolished 535 homes, the most annually in more than a decade and far more than the
283 residences torn down in 2009, according to Monocchio. The city also doubled, to 891 residences, the
number of buildings it secured, sometimes more than once, he said. For building code violations, the city
tries to fine anyone associated with the property's title, whether it is a lender or a former homeowner. A
bank walkaway can also impede a borrower's ability to take out a loan, because his or her name is still
on the home's title and any unpaid debts will follow them.

Privately, lenders say their liability might be limited because they have already written the loan off the
books and the homeowner also left them in a lurch. City officials say they meet regularly with top
servicers to share lists of troubled properties and to work toward resolutions.

In Chicago, the mortgage servicers and trustees most often associated with the properties flagged by
Woodstock are Bank of America, with 314 properties; Wells Fargo (234); U.S. Bank (185); Deutsche
Bank (178); and JPMorgan Chase (165).

When asked to comment generally on bank walkaways, several banks either declined to comment or did
not return phone calls. Two lenders, Wells Fargo and Bank of America, said they are working with the
city on strategies to deal with these abandoned properties.

Neighborhoods on the city's West and South sides seem to be most at risk of bank walkaways.

The city's Roseland neighborhood, on the city's far South Side, is one example. In 2007, some of the
pictures of the homes taken by the Cook County assessor's office showed properties that were reasonably
well cared for by homeowners.

A little more than three years later, the number of eyesores has grown. Windows are broken, fences are
missing and plywood covers some of the broken windows. Even if the houses look secure from the front,
back doors are sometimes missing or open. Public records show that foreclosure actions initiated were
never completed and titles to properties never transferred.

Woodstock's research shows there are 137 "red flag" properties in Roseland. Also, only 90 of the 214
bank-owned properties in the neighborhood, or 42 percent, have been registered with the city.

Woodstock and the GAO recommend that lenders take steps to keep properties occupied, even if it means
writing off the loan without initiating a foreclosure. Woodstock also called for servicers to be held more
accountable and for city departments to have more authority to uphold the rules.

"Many (communities) are now close to a tipping point, if they haven't gone over it," Smith said.

mepodmolik@tribune.com

Bank repossessions soar

Bank repossessions of foreclosed homes in the Chicago region soared almost 20 percent, to more than
45,000 properties in 2010, despite various government and lender programs designed to keep people in
their properties and a slowdown in fourth-quarter activity due to investigations of foreclosure
procedures, new data show.

RealtyTrac, in data scheduled to be released Thursday, said that in the area that spans from the
Wisconsin border to northwest Indiana, 45,555 homes became bank-owned last year. Also during the
year, mortgage servicers filed 83,429 initial notices of default, the first step in the foreclosure process.

In the Chicago area last year, foreclosure filings totaled 80,618 in Cook County; 10,646 in DuPage;
9,041 in Kane; 2,612 in Kendall; 11,026 in Lake; 5,385 in McHenry; and 11,027 in Will.

Many housing analysts have predicted that the housing industry crisis will peak this year, and there is
some evidence that foreclosure activity is again picking up in Illinois. Last month, default notices were
filed against 9,134 properties in the state.

Copyright © 2011, Chicago Tribune

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