That seems like a good thing for a state grappling with thousands of abandoned houses, which drag down the values of surrounding properties and act as magnets for crime. Yet Ohio's new fast-track foreclosure program isn't garnering universal support. While the mortgage industry touts the law as a model for other states to mimic, some housing advocates in Northeast Ohio are skeptical – and worried about legislative add-ons they fear will do more harm than help.
Nobody's arguing against the guiding principle: Pushing vacant properties through the court system more quickly will reduce the window for deterioration and increase the odds that empty homes will be renovated and reoccupied, saving money for taxpayers and lenders alike.
"We end up in this cycle where we're draining local resources to take care of these things. And there's no resolution," said Rep. Jonathan Dever, a Cincinnati-area Republican and attorney who sponsored the legislation. "We needed something to deal with these things."
Still, aspects of the law are chafing some researchers and public officials, who worry about the potential for eroded homeowner protections and lost local-government control. And even proponents of the legislation aren't sure how effective the fast-track program will be.
"We don't feel this is a terrific piece of legislation," said Sally Martin, housing manager for South Euclid, a heavily residential inner-ring suburb east of Cleveland. "Not at all." The law doesn't apply to every foreclosure. Or to every vacant house.
To be fast-tracked, a home must carry a mortgage. The homeowner must be in monetary default – behind on payments – and have moved out. A lender then has the option, but not the obligation, to ask a judge for a streamlined foreclosure process and a swifter sale of the property.
The average mortgage foreclosure in Ohio takes 689 days, according to ATTOM Data Solutions, a California company that tracks the real estate market. That's almost two years. The fast-track program could reduce that wait time to less than four months for vacant homes through reducing paperwork, cutting down on hearings and putting firm timelines on parts of the process.
Hangover from the housing crisis
There are close to 80,500 empty or abandoned houses and condos in Ohio, based on a recent report from ATTOM, the new parent company of RealtyTrac. The state is among the nation's 10 most vacant, with no one living in 2.4 percent of homes.
Not all of those homes are in foreclosure, of course. During the third quarter of this year, ATTOM found, nearly 17,000 residential properties were going through mortgage foreclosure – a process initiated by a lender, distinct from tax-foreclosure proceedings kicked off by counties based on unpaid property-tax bills. Nearly 1,000 of those mortgage foreclosures were considered "zombie" properties – homes sitting empty and in limbo.
A detailed, citywide survey puts Cleveland's demolition need at roughly 6,100 properties. That's a big number, but it's not as bad as researchers expected.
"A foreclosure process, once you file, it can take two years, three years. I've seen four years that a property is sitting there," said Robert Klein, the founder and chairman of Safeguard Properties of Valley View, a major player in the business of securing and maintaining vacant homes for banks. "If a property is occupied, keep them there. I don't care how long it takes. ... Let them live there. But when a property becomes vacant, for the property to sit there for a long period of time, in my opinion, is absolutely a sin."
Klein is a proponent of fast-track foreclosure laws, which have been passed in a handful of states including Nevada, New Jersey and Illinois and are being considered in several others. He believes lenders will be more driven to pursue and complete foreclosures on vacant homes if they know that there's a truncated timeline and a chance to take back a home before it has been vandalized and devalued beyond repair.
"You take any lienholder who gets a property in foreclosure that's in halfway decent condition, they're not going to let it sit there and become a zombie property," Klein said. "It's not in their financial best interest."
Once a foreclosure lawsuit has been filed, the fast-track program gives cities the ability to intervene and ask a judge to speed things up if a lender is letting a case languish.
But the law doesn't require lenders to initiate foreclosure on vacant homes or to seek fast-track status for such cases. And it won't necessarily do much to address almost 3,600 bank-owned homes that currently are sitting vacant across the state.
"It's kind of like chipping away at an iceberg or eating an elephant," Dever said. "One bite at a time. It's not a silver bullet or a one-size-fits-all for everybody."
It's kind of like chipping away at an iceberg or eating an elephant. One bite at a time."
"Nobody's arguing that you should just let vacant properties sit forever," said Geoff Walsh, an attorney with the National Consumer Law Center in Boston. "But I think a more appropriate approach is to look at who caused the problem. Nothing in this Ohio legislation really addresses that. ... Have there be an enforceable law with meaningful sanctions at the state level that penalizes lenders that delay foreclosures and allow properties to deteriorate when they are abandoned. Generally, the lending industry has opposed that type of legislation."
Ohio's law doesn't include any such penalties for lenders, who have a financial stake in the homes as collateral for loans but don't actually control the properties. In some ways, the fast-track program seems more like a carrot than a stick. It provides incentives – speed, cost-savings and a potential financial upside – for banks, in hopes that they'll jump on the bandwagon.
The only punishment outlined in the law is for homeowners, who can be charged with a misdemeanor and fined if they willfully damage a house once the foreclosure process has started. That's the lending industry's response to cases where frustrated and angry residents have trashed – and even demolished – houses after receiving notice of a lawsuit.
Even Dever, who sponsored the legislation, expects that part of the law to be challenged.
"To me, that was one of the areas I wasn't so sure about, either," he said. "How can you be held responsible for doing that to your own house? It's a weird thing."
A foundation that could be modified
Parts of the law, wrapped into Substitute House Bill 390, are likely to be tweaked later this year or early next, Dever said. Those adjustments could come in the form of modifications to House Bill 463, the original fast-track proposal that's still live in the General Assembly.
Some county treasurers and housing organizations in the state are talking about possible amendments. They're particularly perturbed by changes to sheriff's sales, the public auctions where foreclosed properties are sold. The law creates the framework for a statewide website that eventually will replace the in-person sales held at county courthouses and other public buildings.
The website hasn't been designed yet and likely won't exist for another year, at least. There is a five-year phase-in period, so counties aren't immediately required to participate. And the law requires much more documentation about online bidders than local governments collect today. Right now, almost anyone with cash can walk in and buy a house, no questions asked.
Critics believe online listings and sales will encourage more far-flung speculators to snap up properties in Ohio, where out-of-state investors already own at least 3 percent of all single-family homes, according to estimates from ATTOM. County treasurers also are worried about a provision that delinquent property taxes don't have to be paid at the time of a sale.
But public officials including Martin, in South Euclid, are even more concerned about the change in minimum-bid requirements for auctioned properties.
In the past, foreclosures went up for auction at two-thirds of their appraised value, based on county valuations. If a house did not sell the first time, it went up for auction again at the same price. The home eventually might land in the hands of a local land bank, entities that focus on both demolition and redevelopment.
Under the new law, the second sale no longer has a minimum bid requirement. If a house doesn't sell the first time around, it could be offered up again at a much lower price.
"Housing advocates in Cuyahoga County are working on an amendment that would address one specific thing, and that's to restore the minimum two-thirds bid," said Frank Ford, senior policy advisor at the Western Reserve Land Conservancy in Cleveland and a leader of a local coalition of public- and private-sector representatives focused on vacant real estate. "Either do that, or when there's a property that does not sell at the first sheriff's sale for want of bidders, then that property should be offered to the local county land bank as a donation."
Dustin Holfinger of the Ohio Bankers League, which backed the fast-track legislation, said eliminating the bid threshold ultimately will help communities by getting empty homes into the hands of lenders who can resell or donate them or investors who could remake them.
He predicts that most homes won't even make it to a second auction. And he dismissed the idea that investors will be snapping up houses for as little as a $1 – a fear of community groups.
"This bill is probably seven years too late," said Holfinger, vice president of state government relations for the banking organization. "But at least it's occurring at this point. And we believe that it's important to avoid any digression back into the onslaught of vacant and abandoned properties that communities have faced."
Statewide standards versus local control
Dever attributed much of the consternation about the new law to confusion, driven in part by changes between early versions of the legislation and the ultimate language.
For example, the initial bill included a list of criteria for proving that a property is vacant, including trash on the lawn, broken windows, busted doors and disconnected utilities. The final iteration also requires corroboration from a local government representative, such as a code-enforcement official. If a lender doesn't have that proof at the outset, a judge has seven days to order the local community to conduct an inspection.
In South Euclid, that requirement will be an extra burden for already busy staff. But Martin, the housing director, is glad to have an additional layer of control. She worried early on that residents would be turned out of their homes based on visual evidence from lenders and the companies that banks hire to inspect properties.
"We wanted that language where a city can be the deciding factor," she said. "As much as that does provide work for a municipality, it's important work."
For every community that has healed — suburban Rocky River and Orange, or Cleveland's Ohio City and Tremont, to name a few — several are ailing. On some streets, buyers engage in bidding wars. On others, it's tough to get anyone to stop, look or make an offer.
Since the housing bust and the Great Recession of 2007 to 2009, South Euclid has slashed vacancy from more than 800 properties to just shy of 200 today, helped by a 2010 city ordinance that put a registration requirement and sale restrictions on empty buildings. Sellers must bring homes up to code or buyers must agree to take on the violations and commit to fixing them before a property can change hands.
It's clear that Martin is worried about anything that threatens her community's ability to shape what happens to abandoned homes. Faster foreclosures, a smoother sheriff's sale process and better documentation from bidders are all good, she said. But, to her, the new law still feels like it's more about aiding banks and less about fighting blight.
"We've had to take the cleanup of the foreclosure crisis into our own hands because nobody is coming to do that," she said. "The banks aren't bailing us out."
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