Vacant Foreclosures Saddle Local Communities With High Costs

A recent study from the Government Accountability Office (GAO) found that non-seasonal vacant properties across the United States rose 51 percent over the span of a decade, from nearly 7 million in 2000 to 10 million in April 2010.



Ten states saw vacancies go up by 70 percent or more, largely as a result of high foreclosure rates. Those with the largest increases over the last decade were Nevada (126 percent), Minnesota (100 percent), New Hampshire (99 percent), Arizona (92 percent), and Florida (90 percent). Georgia, Michigan, Colorado, Rhode Island, and Massachusetts also experienced increases above 70 percent.

The elevated number of vacant homes carries with it a hefty price tag for lenders that must resume ownership after foreclosure. GAO found that in 2010, Fannie Mae and Freddie Mac reimbursed servicers and vendors over $953 million for property maintenance costs.

However, it’s local governments, many of which are already dealing with depleted funds, that are feeling “significant” pressures from the rise in home vacancies, according to GAO.

The agency notes that other studies have concluded vacant foreclosed properties may reduce prices of nearby homes by as much as $17,000 per property. As a result, municipalities report being out millions of dollars in lost tax revenues. That’s in addition to extra expenditures to put staff, systems, and programs in place to ensure local property ordinances are met, as well as costs associated with addressing public safety issues posed by extended periods of vacancy or improper property maintenance.

In conducting its analysis, GAO interviewed local officials and representatives of community groups to gauge the causal effect of foreclosures on vacancy numbers, the types
of costs associated with vacant properties, and state and local governments’ responses to rising vacancies.

Local contacts pointed to the surge in foreclosures, high unemployment levels and, in some cities, population declines as factors contributing to the increase in vacant properties.

Officials in Tucson and Las Vegas say they did not have difficulty managing the vacant properties in their cities prior to the surge in foreclosures that began in 2006.

In Detroit and Cleveland, officials contend that elevated foreclosure numbers continue to add to the already large number of vacant properties in their cities.

Some servicers and the GSEs told GAO that between 10 and 20 percent of properties are vacant at the time they initiate foreclosure, and by the completion of a foreclosure sale, about 40 percent to 50 percent are vacant.

GAO says the localities it studied are all engaged in multiple strategies to try to minimize the costs and other negative impacts that vacant properties create for their communities.

Efforts range from simple data-gathering to more precisely identifying vacant properties, to acquisition and rehabilitation or, in some cases, demolition of abandoned properties.

In addition, some local governments have tasked servicers with additional responsibilities for maintaining properties, amended their code enforcement rules to establish greater incentives for property maintenance, and established specialized housing courts to address vacant property and other housing issues.

These strategies, however, face various challenges, particularly the lack of financial support to effectively address such a large-scale problem, according to GAO.

As a result, governments in many of the communities GAO examined are reaching out to members of the community – including neighborhood groups and private developers – in an attempt to leverage all available resources.

In addition, local governments have called for increased federal funding and greater attention by federal regulators to servicers’ role in managing vacant properties.

GAO’s full report on home vacancies and their impact on local communities is available online.