Monday, May 1, 2017
[This is the first in a series of essays by Kermit Lind, Clinical Professor of Law Emeritus, Cleveland-Marshall College of Law, Cleveland State University.]
Various observers see different things when they look at houses and buildings abandoned during the mortgage crisis. From different, sometimes competing, points of view, communities need a sustained collaboration of perspectives—local public officials from different departments and agencies, civic and public interest groups, community advocates--using all relevant data and strategic solutions to deal with new threats to residential neighborhoods. Let’s look at a few examples of what different people see in blighted dwellings.
Home owners who abandon their homes are often financially broke, desperate, hounded by debt collectors, often naive or misinformed, and unable or unwilling to continue the responsibilities of home ownership. Worse yet, many cannot voluntarily divest their ownership by sale or donation because the title is encumbered with liens exceeding the current market value. Although creditors may get no financial benefit from asserting their rights, they can still hold empty houses hostage in the debtor’s name, speculating on an improbable solution; or they can sell the debt secured by a lien on the house at a discount. But for home owners in distress, there is extreme stress and uncertainty seeing their home being lost.
Absentee owners and commercial housing investors, on the other hand, see their vacant houses as either productive or nonproductive commodities, if they look at them at all. Their interest is in profitable transactions. Paying for upkeep and property taxes on their investment is justified only by expectations of profit. Unprofitable and unmarketable houses are a liability and treated as waste. Corporate and trustee owners, along with their servicers, find little risk in ignoring their legal responsibilities for maintenance of residential properties owned or controlled by their lien rights. They may ignore local housing and environmental laws and law enforcement as part of their property investment plan.
Judges, sheriffs, bankruptcy trustees, and other officials who preside over legal transactions related to involuntary deed transfers, taxation, liens, and record registration see only documents that track transactions and claims affecting the legal title. Nothing damages ordinary houses more than foreclosures. This institutional fragmentation and myopia enables owners and creditors alike to neglect property maintenance with impunity and defer the resulting costs to hypothetical future owners.
Buyers, rehabbers, and speculators see an income prospect in abandoned houses. Blighted houses for sale “as is” are viewed as money-makers by various types of buyers. Some are doing good work benefiting the community. There are some, however, who ignore their legal maintenance responsibilities. Flipping defective houses for fast profit has become an industry propelled by textbooks, lectures, and get-rich-quick TV infomercials. These houses are sold to people who shop deals on the Internet and “invest” without a single glance at the actual property or the neighborhood. These buyers and sellers see dreams of potential easy profit.
Taxpayers and neighboring owners, ultimately, are forced to subsidize the home owners and businesses that abandon their legal obligation to keep their properties from harming other people and other’s property. The harm to health and safety impacts neighbors of empty abandoned dwellings—long-term harm without compensation. To get a sense of the public costs, consider that in October 2014, the city of Cleveland, Ohio, reported it had 12,000 abandoned buildings, 6,000 of them already condemned and waiting demolition. It anticipated needing $120 million to demolish its current inventory of abandoned houses in a city of fewer than 400,000 people. Its inner-ring suburbs also have a rising inventory of abandoned houses to dispose of. To pay for this problem, the county issued a $50 million bond for demolition.
The article will continue next week with Part 2 in this 3 part series.
This is a revised and shorter version of the paper published in Probate & Property, Vol. 29, No. 2, (March/April 2015) (American Bar Association): pp. 1-9, and available here.