Adverse possession

Prediction: The list of problems associated with foreclosed homes will grow along with the foreclosure rate.

According to the housing analysts at RealtyTrac, “foreclosure homes accounted for 25 percent of all U.S. residential sales in the third quarter of 2010 and that the average sales price of properties that sold while in some stage of foreclosure was more than 32 percent below the average sales price of properties not in the foreclosure process.”

That would seem to be an enticement for buyers to take advantage of a substantial discount while getting the home of their dreams. The growing number of unoccupied bank-owned homes indicates otherwise.

Foreclosures have a negative impact on the prices of nearby homes. They add to the supply of homes that are currently on the market contributing to lower prices or a longer waiting time until a sale is realized. After homeowners have been foreclosed upon they are left with a blemish on their credit history. The Federal Housing Authority (FHA) typically will not lend to a borrower  foreclosed upon in the past three years. Fannie Mae and Freddie Mac have similar exclusions except that they usually last for five to seven years. This means that the former home-owner will most likely rent or move in with family for a number of years. Thus foreclosures result in additional homes on the market with no addition to the pool of potential buyers — especially owner-occupied buyers.

Foreclosures can have negative effects on the values of nearby properties by diminishing the desirability of a neighborhood. The condition of a foreclosed home is often much worse than that of its neighbors. The deterioration often begins in pre-foreclosure. If homeowners know they face eviction in the near future the incentive to maintain their property lessens. Studies show that homeowners who owe more than their homes are worth (negative equity) invested $215 less per year in home improvements and maintenance on average than those with positive equity.

DeKalb County has 479 bank-owned homes according to the latest available data. Another 162 homes in the county are on the auction block. Compared to national and state statistics DeKalb County has a high foreclosure rate.

More and more homes are now sitting vacant for longer periods after foreclosure. Adverse possession and squatter’s rights are becoming part of the vocabulary in a growing number of communities.

In Fort Lauderdale, Fla, Mark Guerette, mortgage broker, saw homes sitting vacant. Guerette went in, fixed them up, paid the taxes and started renting them out to needy families. He is now facing fraud charges, and his case may determine the legal validity of “adverse possession,” as the practice is known.

Locally, groups like the Chicago Anti-Eviction Campaign have challenged foreclosure and eviction cases based on the idea of adverse possession. The land belongs to the people who live there, or so they say.

Some high end squatters need a party house to be seen.  Dawud Walli moved into a three-story mansion in an upscale enclave in the San Fernando Valley. He drove a big Mercedes, sometimes a fancy SUV, and residents say he’s been partying hard but have no idea what else goes on in the house since many of the windows have been covered with garbage bags.

When confronted, Walli showed the cops a lease, which said he was renting from the owner, named Mike Fassi. However, title records revealed the real owner was Thomas Feli, who moved to Northern California when his home went into foreclosure. Felix told police he didn’t know Walli, and that he had, “not leased this property at all.”

Chicago Ald. Robert Fioretti (2nd) says squatters in his ward are not only humans — drug dealers — but animals that are going into vacant buildings and taking neighborhoods over. He called for the city’s Commission on Animal Care and Control restore an abandoned policy that had animal control officers make house calls and deliver traps to battle the raccoons, bats and feral cats that were invading backyards and rummaging through garbage.

Add illegal dumping and public nuisance violations to the mix. Vacant homes are the target of choice for dumping garbage, yard waste, broken down cars, etc. Some vacant homes are maintenance neglected with weed covered lawns, doors standing open and busted windows galore. Bank-owned homes are usually maintained, especially if owned by local banks, but that is not always the case. Neighbors often cannot find who the vacant home owner is to complain about overgrown weeds, for example.

Some see conversion to rental homes as a solution. Investor buyers are encouraged to purchase the bank-owned vacant homes. Others worry that neighborhoods decline when converted to rental properties because owner occupied homes are better maintained. In DeKalb, where a large inventory of rental properties exist and vacancy rates are rising, such a conversion is not at all desirable.

Out of the box thinking? Use the bargain basement prices of bank-owned homes to attract people who work in a community to live in that community instead of commuting. Replenish neighborhoods with working class neighbors. It saves fuel and wear and tear on automobiles. It reduces latch key kids. It reduces stress. Its TIF and CDBG eligible!