David N. Cicilline, mayor of Providence, R.I., recently stood in front of a tenement house in the city and announced his plans to combat rising volumes of abandoned foreclosure properties. His address was poetic, and the message was deliciously uninformed.
‘While this house becomes a target for vandalism and blight, the owner of this property, Deutche Bank, resides in Frankfurt, Germany,’ the mayor proclaimed.
‘City government cannot control the lending practices of mortgage companies and financial institutions, but we can speed up the process of getting these properties out of the hands of anonymous institutions and into the hands of Providence families,’ he continued.
These quotations illustrate how the mayor has successfully perpetuated an age-old misconception: The bank wants to take your house. Worse yet, a bank in Germany wants to take it.
Of course, everyone in the mortgage servicing industry knows that foreclosure is expensive – and real estate owned (REO) management and disposition are even more so, whether the parent company is based in the U.S., Europe, Asia or Antarctica. No financial institution wants a property on its books.
Nonetheless, Cicilline has proposed what he seemingly believes is a novel measure to prevent lenders and servicers from hoarding the nation's foreclosure-housing stock. The mayor is submitting an ordinance to the Providence City Council that would create a new ‘abandoned property penalty.’
Basically, the plan would impose a financial penalty of $10 for each $100 of assessed property value of an abandoned asset. The goal, the mayor's office says, is to create ‘a disincentive for absentee investment buyers to hold vacant property for long periods of time.’
Who, exactly, are these ‘absentee investment buyers’? The mayor said nothing about individuals whom the mortgage industry often identify as investors: speculators who bought properties circa 2004 to 2006, hoping to enjoy a bountiful return in short order. The Associated Press, in its coverage of this news, identified banks as the targets of these penalties.
So, it stands to reason that he is talking about YOU – lenders, servicers, REO managers.
Indeed, Cicilline has also directed the city's law department to look into litigation. He is seeking a public nuisance suit that targets banks ‘that hold onto foreclosed property for extended lengths of time, devaluing surrounding property and creating a neighborhood nuisance.’
In Providence, the message is clear: Foreclosure, REO, abandoned houses and corroding neighborhoods are your fault. And now, on top of absorbing the substantial costs associated with REO, you will be penalized for dragging your feet and sued for holding assets.