Law Office Management
Sep. 2, 2008
Keeping House
State and local governments require owners to keep their real estate from turning into an eyesore.
As tens of thousands of foreclosed homes in California dot the landscape, local governments have found a new way to keep them from becoming an eyesore: Threaten the lender.
A number of cities have recently passed ordinances requiring those who hold title to vacant, foreclosed properties to maintain them?-mowing lawns, draining pools, replacing broken windows, and the like-?or face fines. At the state level, in July the governor signed SB 1137, which in part requires titleholders to keep up their foreclosed properties, and gives cities and counties enforcement authority to compel such action. The common idea is to prevent the residences?-many of which have lately been beset by transients, partying students, overgrown weeds, or brown lawns?-from further depressing property values around them.
?Many times, there is no incentive for a new owner of the property?-if it?s a bank or whatever?-to invest in it because it may already amount to a losing investment for them,? says Bill Higgins, a senior staff attorney and lobbyist for the League of California Cities. ?Some neighborhoods can get into a sort of [downward] spiral of bad-begets-bad.?
Chula Vista, a community south of San Diego, was one of the first localities to pass such legislation. Enacted in October, its ordinance requires titleholders to inspect foreclosed residences when a loan default is recorded, and then to maintain the residences until they are sold.
Virtually every deed of trust for residential property has a clause that gives lenders the right to maintain the value of a property in which they have a financial interest, says Doug Leeper, Chula Vista?s code enforcement manager. All the city is doing now is forcing lenders to exercise that clause, he says. If they don?t, fines can reach $1,000 a day and result in a lien.
?We are getting good compliance now-?better now than when we started,? Leeper notes. ?The lending industry knows we mean what we say.?
With more than 1,000 foreclosed homes, Cathedral City, near Palm Springs, passed an ordinance earlier this year. It requires lenders to conduct weekly inspections, correct problems, maintain the properties, and post contact information so neighbors can report complaints directly, says Jan Davison, the city?s redevelopment director.
Other cities, such as Indio and Stockton, have enacted similar laws. Still others, such as Oakland, are using longstanding ordinances that bar blighted properties as a means of forcing lenders that hold foreclosed homes to keep them in good repair.
Cities report that these efforts are bringing satisfactory results, but some lenders aren?t happy with the hodgepodge of local rules. The California Bankers Association, for instance, would prefer one state law, says General Counsel Leland Chan, adding that some of what?s already on the books can be problematic. For example, some local ordinances require lenders to do maintenance work prior to an actual foreclosure?-but that would be before they can rightfully enter the grounds of a property, Chan says. Lenders do have certain additional rights upon default, but they must tread cautiously. The choice, he says, may be to ?either violate the agreement with a borrower or violate the ordinance.?
?No one has a greater incentive to keep up these homes than the lenders who own them,? says Dustin Hobbs, spokesperson for the California Mortgage Bankers Association. But with so many foreclosed homes on the market, he says, ?there are some falling through the cracks.?
Usman Baporia
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