‘Zombie foreclosures’ help fuel rate drop

CAN’T GO HOME: Chris Ackley, stewardship manager at Olneyville Housing Corp., in front of 238 Amherst St. in Olneyville. The three-family home has yet to be foreclosed on because banks don’t want to own it. / PBN PHOTO/MICHAEL SALERNO
CAN’T GO HOME: Chris Ackley, stewardship manager at Olneyville Housing Corp., in front of 238 Amherst St. in Olneyville. The three-family home has yet to be foreclosed on because banks don’t want to own it. / PBN PHOTO/MICHAEL SALERNO

Like an increasing share of the properties in Providence, the vacant, white three-family at 238 Amherst St. in the Olneyville neighborhood is not a foreclosure.
Despite boards on the windows and no paying tenants, the owner who walked away from the house still owns it. The owner’s lender, JPMorgan Chase, according to community groups, doesn’t have enough interest in the property to bother repossessing it.
Known as “zombie foreclosures,” properties such as 238 Amherst, trapped between a delinquent owner and a disinterested mortgage holder, are a disappointing contributor to the plummeting foreclosure rates of the past three years.
In 2013, there were 262 foreclosures in Providence (excluding the East Side), a decline of 17 percent from 2012 and 43 percent since 2010, according to a HousingWorks RI analysis of data from the Warren Group.
Most of that decline is a result of the recovering economy and real estate market, which have reduced the number of people who can no longer pay the rent or mortgage, while pulling some struggling owners out from negative equity.
It’s a similar picture statewide, where foreclosures declined 10 percent between 2012 and 2013 and 30 percent since 2011.
Over those years, serious delinquencies in Rhode Island have also fallen, but not nearly at the pace of the slowdown in completed foreclosures.
During the first quarter of 2009, there were 858 Rhode Island foreclosures, a number that had plunged to 298 at the end of last year, according to HousingWorks.
The state’s serious delinquency rate, however, has fallen from 7.09 percent to 6.57 percent over the same period, although it included a spike to more than 8 percent in early 2010.
The plunging number of foreclosures compared with the more gradual decline in owners falling behind suggests a significant number of properties are languishing without an interested owner.
Frank Shea, executive director of Olneyville Housing Corp., said the lack of accountability from lenders is one of the biggest drags on neighborhoods otherwise recovering from the recession.
“Things are definitely better than they were at the foreclosure peak, but one thing that is probably contributing to the lack of foreclosures that isn’t positive are the zombie foreclosures,” Shea said. “We are just seeing them vacant and abandoned for years. In some cases they are still occupied even though the owner isn’t paying the mortgage.”
Typically, the lender will pay the taxes on a “zombie” property to prevent it being taken in tax sale, but the market value of the properties isn’t high enough to be worth the effort of adding them to the balance sheet.
The property at 238 Amherst St. has become a symbol of the problem for Olneyville Housing because it’s across the street from housing the nonprofit has rehabilitated and a community center.
The building has been hit with graffiti that includes the name of Chase bank, Shea said, but that hasn’t prompted much change.
Inquiries to JPMorgan Chase media staff about the property and the practice of not concluding foreclosures were not returned.
That’s not surprising considering banks’ customary reluctance to talk about foreclosures.
When asked if The Washington Trust Co. ever declines to foreclose on a hopelessly defaulted loan, Senior Vice President of Marketing Beth Eckel in an email said only that the bank “has very few residential foreclosures,” works with struggling borrowers “on a case-by-case basis” and is “in compliance with all consumer privacy laws.”
With the housing market continuing to tighten and real estate values increasing, lenders may become more interested in taking hold of the homes their borrowers have given up on.
In the first quarter of this year, there were eight more foreclosures in Providence than there were in the first quarter of 2013 and there were 25 more statewide foreclosures than the same period last year, according to HousingWorks.
That small increase comes despite the state’s serious-delinquency rate falling to 5.95 percent at the end of March, compared with 7.17 percent last March, according to real estate data firm CoreLogic.
Jessica Cigna, research and policy director at HousingWorks, said one reason for the recent uptick in Rhode Island foreclosures could be a streamlining of the state’s foreclosure-lawsuit mediation process.
The federal court had placed a stay on disputed foreclosures until parties underwent mediation, but last year an appellate judge ruled the stay improper, setting some of those cases in motion again.
Outside of federal court, the party with the most ability to influence foreclosures and deal with the “zombie” issue is the city, which has developed several tools to combat problem properties since the housing bubble burst.
These include a nuisance property list of places neighbors have lodged persistent complaints about and an abandoned property registry requiring the owners of vacant buildings to pay an annual escalating fee each year they remain empty.
Providence City Solicitor Jeff Padwa said currently there are 350 properties on the abandoned list, up from 88 properties at the same time last year. The owners of those properties on the registry are expected to contribute $30,000 to the city budget in fiscal 2015.
The city has also begun utilizing an ordinance allowing it to place nuisance properties into receivership with the receiver authorized to repair them and collect the cost of that work from the owner.
For the first time this year the city found receivers with access to enough capital to make the upfront investments in the properties. Two properties have been improved through receivers this year and, now that officials know how to do it, Padwa said the city could place “hundreds” through the process going forward. The Providence Redevelopment Authority has also been much more active in the past two years, taking ownership of certain buildings repossessed by the city, fixing them up, selling them, and using the proceeds to fund additional reclamation projects.
“With these tools we are smoking [absentee owners] out and once we know who they are, we bust their chops on maintaining the property,” Padwa said. “If they don’t, we can transfer to it to the PRA and accelerate the process.”

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