Tuesday, March 4, 2008
The distressing boom in foreclosures is imposing costs on local governments, which find that many houses are abandoned, especially in poorer neighborhoods, both serving as annoyances to neighbors and attracting vandalism and crime. Some cities are resorting to demanding that creditors take more responsibility for taking care of houses on which they have foreclosed. A problem with this is that so many homeowners are simply abandoning their homes before foreclosure; most creditors don’t find it worthwhile to go after them for money that they may owe beyond the value of the house. Thus many houses may serve as local nuisances before the creditors even know that the residents have gone.
Instead of pointing fingers or filing lawsuits, I suggest that governments might consider a new land use law along these lines: When the government learns that a house appears to be abandoned, it informs the creditor, and the creditor holds an obligation to engage in basic maintenance, even if it has not yet formally taken title to the property. While this might prove to be costly for some lenders, it will also encourage creditors to take early steps to try to avoid the problem of abandoned properties.