Cash-Strapped Communities Challenged By Foreclosure-Related Vacancies

Cash-strapped municipalities are struggling to find solutions for addressing their huge inventories of vacant properties, according to a new report from the Government Accountability Office (GAO).

Citing Census Bureau data, the report states that nonseasonal vacant properties have grown 51% nationally from 2000 to 10 million in April 2010, with 10 states having experienced increases of 70% or more. The GAO conducted its study because it was requested to examine the relationship between vacancy and foreclosure trends, the types of costs created by vacant properties, and state and local government responses to the epidemic.

In addition to Census Bureau data, the GAO analyzed property maintenance costs using data provided by the Federal Housing Administration, Fannie Mae and Freddie Mac. According to the GAO, the government-sponsored enterprises paid out more than $953 million for maintenance costs in 2010.

However, the report notes that local governments say they are spending millions to take care of properties that are not properly maintained. Since 2009, for example, Detroit has spent about $20 million to demolish nearly 4,000 vacant properties. Additionally, vacant properties produce public safety costs and, because they lower the prices of nearby homes, reduce communities' tax revenues.

Some studies suggest vacant foreclosed properties have reduced the price of nearby homes by as much as $17,000 per property, the report states.
Although municipalities have implemented a range of strategies – such as the creation of land banks that acquire and hold vacant properties for later sale or demolition – a lack of funding and a limited buyer base have stymied their efforts.

Additionally, some local governments require servicers to notify cities when they identify a property that they are managing as vacant.

"However, localities often lack resources or staff to enforce these requirements fully," the report says. "Some suggest fewer properties would become vacant if servicers had to account for communities' costs – such as for policing and fires – when considering whether to modify loans or foreclose, but servicers and others questioned the feasibility and effectiveness of such an approach."

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