The state Senate has passed legislation designed to protect Connecticut neighborhoods from the disrepair and blight of uninhabited foreclosed properties and hold financial institutions that own those homes responsible for their repair.
Senate Bill 951, which passed the Senate by a 36-0 vote, creates a registration system for tracking the owners of uninhabited one- to four-family dwellings obtained by strict foreclosure or foreclosure by sale.
It also allows municipalities to enforce local or state ordinances that would require financial institutions that own the foreclosed properties to repair or maintain them if they become blighted.
Currently, no such law or requirement exists.
State Sen. Bob Duff, D-Norwalk, who sponsored the legislation, said it is necessary to hold real estate owners accountable for the condition of foreclosed properties.
"Blight is an extremely damaging byproduct of home foreclosures," said Duff, who is also co-chair of the banks committee.
Duff said that when foreclosed homes sit uninhabited, they start to fall apart because their structures usually aren't maintained. He also said yards go unattended and vandals attack buildings, which "degrades the quality of life in our neighborhoods, reduces neighboring home values and leads to violence and crime."
"This is not just a cosmetic issue; it's a serious public safety concern," Duff added. "This gives municipalities a way to fight blight and maintain neighborhoods."
Under the proposal, foreclosed properties would have to be registered with the municipality's town clerk or with the Mortgage Electronic Registration Systems, a popular mortgage tracking system currently being used by the industry.
Those who register with a municipality would be required to pay a $100 fee and provide personal contact information for themselves and any local property maintenance company responsible for the security and maintenance of the vacant residential property.
One proponent of the bill has been Sameera Fazili, a Ludwig Community Development Fellow and a clinical lecturer of law at the Yale Law School.
In written testimony to the banks committee earlier this year, Fazili said the "management of vacant properties is critical to help prevent both the crime that accompanies abandoned properties and the rapid decline in local real estate values from blight."
One of the overlooked consequences of home foreclosures is the negative impact it has on surrounding property values, Fazili wrote.
A study by Geoff Smith, vice president of the Woodstock Institute, a policy group in Chicago, found that each foreclosure within an eighth of a mile of a single-family home results in a 0.9 percent decline in the home's value.
With the widespread number of foreclosures in Connecticut and across the country, the situation has gotten severe for many homeowners.
According to the Mortgage Bankers Association, Connecticut had 28,285 home mortgages, or about 5.3 percent of all home loans, either in foreclosure or 90 days past due as of March 31.
At the same time, single-family median home prices in Connecticut plummeted nearly 18 percent in the first quarter of 2009, to $220,000 from $267,000 in the first quarter of 2008, according to Boston real estate publisher The Warren Group.
That was the steepest drop in home prices since The Warren Group began tracking the data in 1987.
Monthly median home prices have been falling by double-digit percentages year-over-year for six consecutive months.
While maintaining foreclosed properties can help prevent or minimize a drop in home prices, properties owned by banks sometimes go ignored.
That's because most mortgages have been securitized, and when they are placed in foreclosure, they are usually transferred to a securitization trust, Fazili said.
Those trusts are typically managed by investment banks, which have portfolios of thousands of vacant properties scattered throughout country.
When local city code officials attempt to contact the owners to have properties kept up to code, they are typically unable to reach any person with authority to actually manage the building or remedy any defects.
As a result, properties can go untouched for weeks or even months.
Duff said by creating a tracking mechanism the lawful owners of foreclosed properties "can be easily identified and held accountable."
Greg Bordonaro is a Hartford Business Journal staff writer.
"Nice job on this article. The info on the difficulty on communicating with the "bank" owners of foreclosed properties explains a lot. It would be interesting to know what the behind the scenes bank process is with foreclosures. I imagine that it has changed a good deal in the past year or so. Funny, but it seems that the overload would indicate a great need for increasing staff....creating jobs. That especially with the bailout money they have gotten and not put to use in the public sector where we need it most. I have had some experience on the buyer side of the real estate transaction lately, and it is very frustrating not to know or understand who you are dealing with. Anyway. Very solid reporting. Thanks.'' -- Tanya Detrik, All Write Resources