Biting back on derelict properties

FINE LINE: Providence City Councilor Sabina Matos is co-sponsoring an ordinance that would fine property owners for leaving abandoned houses in poor condition. / PBN PHOTO/CHRIS SHORES
FINE LINE: Providence City Councilor Sabina Matos is co-sponsoring an ordinance that would fine property owners for leaving abandoned houses in poor condition. / PBN PHOTO/CHRIS SHORES

The boarded up windows and charred siding of 68 Joslin St. have been depressing sights to neighbors in the Olneyville section of Providence since the building was gutted by a fire last September.
The owner, who purchased the building out of foreclosure and whom the city cannot reach, has made no move to make repairs, adding the building to the list of derelict properties posing safety concerns and driving down property values in Providence’s most vulnerable neighborhoods.
Now, more than four years after the foreclosure crisis, the city is coming after absentee landlords and banks they blame for neglecting homes, like 68 Joslin, in Providence’s hardest-hit neighborhoods.
The city council and Mayor Angel Taveras have proposed the first “Foreclosed and Abandoned Property Registration, Security and Maintenance” ordinance in Rhode Island, which adds new teeth to local efforts to fix up so-called nuisance properties.
“It was something that was affecting my neighborhood,” said Ward 15 City Councilor Sabina Matos, a co-sponsor. “There are properties that have been in the process of foreclosure for years and, in the meantime, no one is keeping up the property, nobody is cutting the grass, thieves take the copper and it looks like the bank didn’t have anyone locally to pay attention. It just affected the quality of life and value of property in the area.”
The ordinance would force the owner of any residential property that has been vacant for three months and is not actively marketed for sale or lease, to register it with the city for a $500 fee.
If the building stays vacant for a second year, the fee rises to $1,000, and third and subsequent years bring annual fees of $2,500.
Failing to register an abandoned building brings a fine of $250 per day and the law gives city building inspectors the authority to identify homes and put them on the list if it becomes clear they have no occupants.
Once a building is registered, the owner faces fines of $1,000 per day if the home is not kept in decent condition, fully locked, free of pests, trash, debris and graffiti.
In addition to primary sponsors Matos and Ward 13 Councilor Bryan Principe, the ordinance was co-sponsored by the remaining 13 city councilors, giving it a strong likelihood of passage. The council is expected to be take up the ordinance when it meets in September.
Although this is the first such ordinance proposed in Rhode Island, there are 500 cities nationally with vacant-building ordinances of some kind, including several put in place in recent years in Massachusetts. Unlike the Providence proposal, many ordinances in other states include or are targeted at vacant commercial properties. With strategic default more common than ever, some in the mortgage industry worry that banks, often reluctant to write-off and take back the most troublesome buildings in default, may become even more so. That could prevent more derelict properties from being auctioned off to buyers with the ability to rehabilitate them.
“It could be a huge management issue for the banks to deal with – until the foreclosure process and auction [are] completed they don’t own the property and don’t have the right to go in it or rent it out and make improvements,” said Stephen Tetzner, vice president of Homestar Mortgage Inc. in Providence and president of the Rhode Island Mortgage Bankers Association. “If the property is only worth $50,000 and there are back taxes, and now all these fines, by the time we get to foreclosure, it may be better to walk away entirely. Do you think someone who is facing foreclosure is going to go to the city and pay $500?”
With the threat of large city fines on top of an already substantial loss when a loan goes bad, Tetzner said ordinances like this could make it even more difficult for legitimate buyers to get loans in hard-hit neighborhoods.
City Solicitor Jeffrey Padwa, who leads the interdepartmental Providence Nuisance Property Task Force, said banks currently are doing so little to protect distressed properties, and only foreclosing when they know they have a buyer, that the new fines shouldn’t make a difference.
“They are already like an ostrich sticking their heads in the sand, so I don’t know how it could back them off further,” Padwa said. “Hopefully it will motivate them to be more responsible and step in before a property becomes a problem.”
In addition to offering a deterrent to owners who might abandon their buildings, the ordinance is designed to give the city a local contact responsible for each vacant property, including those now owned by national or international banks, which would be required to designate someone within 50 miles of Providence.
There are currently 85 properties on the city’s nuisance list, but Padwa said that doesn’t include all of the homes that have been abandoned. A more-detailed count is being put together. To make sure the ordinance does not end up punishing well-intentioned landlords whose buildings happen to become vacant, the ordinance exempts any building that is in the process of renovation, is being advertised for sale or lease, or is rented seasonally. The fines for buildings on the abandoned list also come with chances for landlords to remedy maintenance problems detected by inspectors before incurring a fine.
As a result of those protections and the chance that the ordinance will prevent some properties from becoming blights on otherwise healthy neighborhoods, it’s received the support of landlords in the Providence Apartment Association.
“It looks like it was carefully written to give owners a chance to address concerns before slapping a fine on them,” said Apartment Association spokesman Ed Kazarian.
On whether the ordinance might make banks more reluctant to lend in certain neighborhoods, Kazarian said the added protection against having a home on the same street become a value-reducing nuisance would likely counteract any risk associated with incurring new fines.
At nonprofit lender Rhode Island Housing, Corporation Counsel Michael Milito said lenders still have an incentive to protect the value of a property and prevent it from becoming abandoned, even if it means absorbing a city fee. The alternative is often getting nothing out of the property if it is neglected and the city ends up repossessing it for unpaid taxes or liens.
The story at 68 Joslin demonstrates how much each side loses when a property goes through foreclosure and is abandoned.
The 2,860-square-foot building was sold at the height of the market in 2006 for $330,000, but went quickly into default and lender Deutsche Bank foreclosed on it in 2007. Two years later the bank sold the building for $20,000. Then there was the fire and police have since been called to the house for disturbances.
The city now intends to demolish the building, which will cost around $40,000, and repossess the property to pay off some of what will be liens in excess of what it is worth, Padwa said.
On what common threads he sees in abandoned buildings, Padwa said it is often not financial trouble on the part of landlords that causes them to walk away, but getting in over their heads.
“They think they will make more money by renting by the room, but then the tenants who rent by the room are not the best tenants,” Padwa said. “They lose control and don’t know what to do.” •

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