What happens to neighborhoods when titles turn toxic–when the value of a foreclosed property goes so low that the cost of completing the foreclosure is prohibitive to the lender? As Fed Governor Elizabeth Duke recently noted in a speech on Community Stabilization:
Many community organizations and homeowners have been frustrated by the difficulties of working with mortgage lenders and servicers, and these problems are even more exaggerated in weaker market cities. In the most devastated neighborhoods, some lenders do not even complete the foreclosure process or record the outcome of foreclosure sales because the cost of foreclosing exceeds the value of the property. Anecdotal evidence suggests that these “toxic titles” have placed significant numbers of properties in a difficult state of legal limbo.
Mary Kane at the Washington Independent wrote about toxic titles in an article on “walkaways” over a year ago:
Walkaways wind up with “toxic titles,’’ Lind says. The mortgage company retains a lien, or a charge, on the house, but the borrower still is considered the owner. The property sits in limbo, with the mortgage usually exceeding what it would sell for, because of its decline. If the city has to tear it down, it adds its own $8,000 to $10,000 demolition lien. Not surprisingly, potential buyers aren’t exactly lining up. Non-profit neighborhood groups that could fix up the property face long and expensive legal battles to claim it.
With the recent financial market meltdown we’ve gotten used to terms like “toxic assets” and “zombie banks.” Will we add “zombie homes” and “zombie neighborhoods” along with “toxic titles” to our vocabulary? How can neighborhoods revive if vacant homes linger in limbo, like zombies, the living dead sucking the life and draining the value from the rest of a neighborhood?
Elizabeth Duke’s speech gives a number of indications of some ways forward. If you’re interested in these kinds of questions–and would like the chance to explore different approaches our society might take in responding to them, you might be interested in taking part in the Shaping Our Towns & Cities project.