NJ Spotlight

Walkaways by Banks Run Up Number of Vacant Homes

Increase in empty foreclosed properties drains social services, financial resources in Newark

NJ Spotlight — Friday, April 19, 2013

By Joe Tyrrell

Almost 43 percent of bank-owned properties in one Newark neighborhood remain vacant, even years after foreclosure, according to a new study.

On a day when the city auctioned off 80 abandoned properties, the large number of vacant foreclosures "really jumped out" at researchers as they walked the Upper Clinton Hill neighborhood and studied property records, Linda Fisher, a Seton Hall University professor, told a Newark City Council committee hearing.

"We've heard a lot about homeowners walking away in the middle of foreclosures" rather than continuing to make mortgage payments, Fisher said. "Well, these are bank walkaways."

Vacant, boarded-up units can become a pernicious problem, as they are a drag on the city's finances, with extra costs including fighting fires, police actions, trash removal and social-services issues, such as dealing with squatters and vagrants. They also further depress property values.

Foreclosures have added $56 million to such expenses in a five-year period in which the city's average tax bills have risen by almost 50 percent, said Carol Meyers, a researcher for the Service Employees International Union.

The researchers were particularly dismayed to come across squatters in the vacant units. Upper Clinton Hill "is one of the city's more stable neighborhoods, or at least, it was," said Fisher.

Many habitable units are in "foreclosure limbo," she said.

The effects of the continuing foreclosure crisis have been "devastating" for the city and its finances, according to Stephanie Greenwood of Newark's economic and housing development department.

"Property values and tax revenues are declining just when residents, because of the recession, are relying on public services more," she said.

With little help from Washington and virtually none from Trenton to combat the foreclosure crisis, organizers of yesterday's hearing said they hope Newark can become a leader for action at the municipal level.

Paul Karr of New Jersey Communities United, which released Meyers' report, said the group hopes to have similar discussions in Jersey City, Passaic and other communities. The push is beginning in Newark because of the number of foreclosures in Essex County, he said.

New Jersey has the second-highest foreclosure rate in the country, behind only Florida, and the gap is shrinking. While their populations are lower than Essex County, the Trenton-Hamilton and New Brunswick areas have been particular hotspots, and the contagion has spread to South Jersey, according to data from Kathe Newman of Rutgers University.

"Unfortunately, our state has done much worse than other states in addressing this crisis," Arnold Cohen, policy coordinator of the Housing and Community Development Network of New Jersey.

He pointed out that Gov. Chris Christie used $75 million, the state's share of a national foreclosure fraud settlement, to plug holes in his budget. The governor vetoed several bills intended to aid affected property owners, and the aministration mishandled the release of $300 million in federal aid.

Councilman Darrin Sharif, who chaired the hearing, said Christie and other top officials were invited to participate in the Newark hearing, along with representatives of major banks doing business in Newark, but all declined to attend.

Federal efforts have been almost as ineffectual, according to Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action. Checks began going out Friday to homeowners from the national settlement, pushed by the Obama administration, she noted.

"But the majority of people in New Jersey are getting $300 after losing their homes... which nobody believes is going to fix anything," Salowe-Kaye said.

From 2008 to 2012, Essex County saw 13,500 home foreclosures, with roughly half of them in Newark, according to Meyers. On average, a foreclosed home drops 22 percent in value, she said. That translates into a $600 million loss on the Newark properties, she said.

Meyers acknowledged that estimate might be low for current conditions, since the value loss formula is based on a 2006 study. But that is only part of the equation, because foreclosures have a ripple effect on surrounding property values, particularly in areas with many vacancies, she said.

"Newark homes on average lose $3,700 in value just by being within an eighth of a mile of a foreclosed property," Meyers said. It adds up to a $1.3 billion loss in the city's property values "on top of the $600 million," she said.

Meanwhile, at least 9,000 more Newark residential mortgages are "underwater," with borrowers owing more than the current value of their properties, according to Meyers.

The city is responding to the problem — at least to some extent. Code-enforcement officials are now alerted when a notice of intent to foreclose goes out on a property, in order to enforce property maintenance requirements, Greenwood said.

But Meyers and Trina Scordo, executive director of New Jersey Citizens United, recommended the council tighten up the ordinance's definitions of ownership and responsibilities.

They also floated the idea of using eminent domain against properties owned by banks and real-estate trusts. Sharif and fellow Councilman Ron Rice Jr. expressed interest, but several other speakers said the idea requires more research.

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