When a homeowner defaults on mortgage payments and is compelled to vacate the property, who becomes responsible for its upkeep?

Kansas City officials are spending thousands of dollars looking after vacant properties because they are unable to locate the owners. During the last fiscal year itself, the city raked up a bill of $ 1.4 million just removing trash, clearing weeds and boarding up abandoned houses.

Locating the rightful owners is increasing becoming difficult, say city officials. A recent trend has homeowners abandoning their properties when they are unable to keep up with mortgage payments. At the same time lenders are delaying foreclosure on them. And the city is caught in between.

The legal status of an abandoned property depends on where the owner-lender relationship stands at that time. If the property has been foreclosed or the owner has handed it over to the bank then the lender is considered to be the owner. On the other hand if the lender has not taken possession then the homeowner continues to be responsible.

City officials are compelled to locate the legal owners when a vacant property falls into disrepair. Apart from mounting garbage and overgrown vegetation, the property may present a security hazard and a site for breeding disease. Its value depreciates and so do that of other homes in the neighbourhood. Caring for the property is an expensive proposition and even tearing it down costs at least $8,000.

Official records filed when foreclosure proceedings are initiated can help city officials locate the present owner and assign responsibility for upkeep and trash abatement. But increasingly, it is becoming very difficult to pinpoint the actual owner. On one side there is the owner of the property who has abandoned it and is not traceable now. On the other is the lender, who has not taken it over yet and so cannot be held responsible for it.

Even when the ownership is clear, actually contacting the person or company responsible can be quite a chore. Instances of unanswered phone calls and missing forwarding addresses are commonplace.

City officials are at a loss when the ownership remains unassigned as they have few means by which they can recover the maintenance costs of the property.

Nathan Pare, head of the dangerous buildings department in Kansas City, believes that the onus of maintenance lies with the lender. Otherwise the city will be forced to recover the amount from the taxpayer’s money. He says, “Let’s not beat around the bush. It’s not fair.”

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The rate of foreclosures continues to rise unabated in many parts of the country. Market analysts expect this trend to continue throughout 2009 before there is a turn in fortunes. In the mean time however this increased foreclosure rate is spawning a whole gamut of other concerns.

Residents of areas which are experiencing a number of foreclosures are watching their neighbourhoods deteriorate rapidly. Boarded up homes are turning into eyesores with overgrown gardens, piling trash and algae ridden pools. These properties are also becoming safety hazards as mosquitoes are spawning on the stagnant water of the pools and thus increasing the risk of disease. Many of the abandoned homes have become havens for bees who build large hives undisturbed within the premises.

Foreclosed homes tend to act as magnets for anti social activities and it is little wonder that neighbourhood crime is on the increase. The risk of break-ins and burglaries are ever present and has prompted the police departments of several counties to issue warnings and guidelines on home security. Burglaries can range from merely stealing copper pipes and other fittings on the outside of the house to looting furniture and other possessions from inside it. In extreme cases, fraudsters have been known to break in, change the locks and actually put the home up for sale pretending to be the owners!

Mortgage fraud is another concern that has raised its head with the spurt in foreclosures. Typically in such frauds a home is bought and appraised at an inflated value. A supposed buyer then purchases the home at the inflated price and cheats the bank into paying the first buyer a higher price than the actual worth of the property.

Federal investigators warn that high foreclosure rates and mortgage fraud tend to go hand in hand. According to one report, the FBI at present has 1380 mortgage cases on its roles. A comparison with the fiscal year 2006 shows the extent of the increase. In 2006 The FBI was investigating 818 cases of mortgage fraud.

A recent court case in Las Vegas illustrates the situation vividly. Eve Mazzarella, 30 and Steve Grimm,45 were prosecuted for having made a profit of $15 million from fraudulent loans totalling to $107 million. The case involved the sale of a home on Rolling Hills Drive which turned out to be one of 277 properties involved in the fraud.

In fact, with a foreclosure rate of 4.2 per cent, Las Vegas has been termed “mortgage fraud ground zero” by Scott Hunter, FBI supervisory agent.

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Located in the affluent Highland Terrace in Bridgehampton, the Hamptons Designer Showhouse is built on more than 4 acres of land. The 8 bedroom home has a mortgage of $ 4.4 million and is currently in the initial stages of foreclosure. So are four other properties on the ocean facing Dune Road. Surprising?

Not any more, feel real estate analysts. The Hamptons, peppered as it is with home valued at $ 30 million and $40 million, was regarded as being above the foreclosures which are happening everywhere else in the country. Foreclosures were something which happened to other people as far as the residents of this region were concerned.

Recently however this situation is seeing a slow change. Lis pendens, the first legal notices for foreclosure are raising their heads in some places and a few homes have already been taken back by banks this year.

Alan Stein, bankruptcy and real estate attorney in Southampton, says that he has more work than ever now as the number of clients coming to see him has doubled in the past 6 to 8 months. He underlines that several of his clients are being unable to make mortgage payments even though they live in homes worth several million dollars.

Real estate agents however are not unduly worried by this turn of events. They feel that a few foreclosures were inevitable with the national economy being affected by widespread foreclosures. Rick Hoffman, regional senior vice president for Corcoran, opines “I would say we’re almost foreclosure-proof out here to some extent.”

Experts warn however that every foreclosure affects the neighbourhood. Home sales can slow down and the economy may take a downturn, if there are a significant number of repossessions. According to the founder and chief executive of Town and Country Real Estate, Judi Desiderio, “If there’s less capital in the economy to spend, then it’s going to affect all of us.”

The Hamptons may be protected somewhat by the profile of its residents. As owners of multi-million dollar properties, they are likely to have resources that could help them find various ways out of the predicament. Alternatively, the properties may be rented out in summer, generating an extra income to tide over the situation.

As real estate attorney Alan Stein is quick to point out, “Nowhere else on the Island are you able to rent for three quarters of the years’ expenses … for three months of time. That saves people.”

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A leading information portal, Foreclosures.com has recently claimed that the foreclosure tide may have finally started turning.

Specialising in foreclosure related information the company supports its claims with figures that show that the rate of foreclosures appears to be dropping over April and May of this year. The data shows that not only has the number of foreclosures declined by 11.98 % from April but the number of pre-foreclosures too has dropped by 8.89 % in May this year.

Over the past 20 years ForeclosureS.com has collected and analysed foreclosure information and amassed a huge database of more than 5.5 million property listings. The information on the foreclosures is sourced from formal notices filed against a property. These include notices of default, foreclosure auctions and REO foreclosure. The accuracy of the information provided has made ForeclosureS.com a reliable reference point for many professionals.

President of ForeclosureS.com, Alexis McGee emphasises that the numbers reflect her own estimation that the housing market is in a better situation than it would otherwise appear. She points out that buyers are resorting to purchasing foreclosed homes as the number of new houses being constructed has fallen. Thus supply is once again catching up with demand and the housing market is finally reaching rock bottom.

McGee also attributes the turnabout in part to efforts by the government and industry to help homeowners sort out their problems with mortgage and defaulting payments. Today, much is being done by all the concerned parties to ensure that defaulting homeowners avoid foreclosure by working out alternative options.

As an expert and educator in foreclosures, McGee herself has authored The ForeclosureS.com Guide to Advanced Investing Techniques You Won’t Learn Anywhere Else (Wiley) and The ForeclosureS.com Guide to Investing in Pre-foreclosures Without Selling Your Soul (Wiley).

While emphasizing that the monthly figures were cause for optimism, McGee is also careful to point out that the year to date (YTD) figures show that there is still a long way to go before the current foreclosure crisis can be termed over. The YTD data reflects increases in foreclosures since last year. According to ForeclosureS.com, the number of REOs rose by 68.36 % since last year and out of every 1000 households, 117 faced pre-foreclosure. However the monthly REO numbers have started falling recently, which is being seen as a positive sign.

More detailed data and statistics regarding foreclosure filings at various stages can be accessed on the ForeclosureS.com website.

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Usually, when distressed homeowners abandon a property when they are unable to keep up with mortgage payments, the lender takes over possession. The home is then rapidly disposed of through foreclosure auctions so that the losses are minimised and unpaid dues recovered.

Recently however, more and more abandoned houses are being shunned by the lenders too and foreclosure on them is being deliberately delayed. Experts are intrigued by this situation and are trying to find plausible explanations for it.

While city officials feel that lenders are avoiding taxes and upkeep, legal aid lawyers are of the view that this may be a way of hiding steep losses. The real estate industry puts it down to lenders being overwhelmed by the sheer numbers of foreclosures.

Experts however are narrowing down the cause to complex mortgages taken out during the housing boom a few years ago. Many loans taken at that time were broken down and repackaged into securities. These were then sold to investors both within the country and internationally. Quite often the investors would have little knowledge about the house itself, preferring to treat it as just one more figure.

Several large banks too invested in these securities and took on the role of trustees with no legal title of ownership.

In Kansas City, the European Deutche Bank is recorded as the lender in over 360 properties that have undergone foreclosure. John Gallagher, spokesperson for the bank, points out that it is not the responsibility of the bank to foreclose and subsequently dispose of the properties. Instead, this duty lies with the initial lender or a service company which has been hired for the purpose.

The complexity of the situation has made it very difficult to determine which party is responsible for what as regards the foreclosed property. Experts estimate that sometimes it can take several months to figure out who the real lender is …and that name may not even feature in the official court or county records!

Kim Tucker, president of the Mid-America Association of Real Estate Investors, illustrates this point saying, “Sometimes there are so many layers to go through, the house gets lost….I bought a house last summer. There was a foreclosure, and it took six months to find the owner.”

On a national level this trend of home ownership lying in limbo is not a cause for undue worry. But in regions where this is actually taking place, financial observers are concerned. They see the trend slowly spreading and fear that this will lead to official foreclosure figures not really reflecting the situation on the ground.

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Rising foreclosures are seeing the emergence of a new kind of transaction: the short sale. Unheard of even until a few years ago, these sales involve homeowners selling their homes for less than the amount of their mortgage. The sale is carried out in agreement with the bank, to avoid a foreclosure.

In the Hamptons, foreclosures were not a major concern until quite recently. The area watched other parts of the country experience a spate of repossessions but seemed to remain untouched by it.

The story however is now slowly changing. The last year has seen a steady rise in “lis pendens” or the first legal foreclosure notices in the East End area. Foreclosure auctions too have started taking place.

The Hamptons has always been an upscale area where the truly affluent have their homes. Foreclosures of $ 1 million or $3 million homes are hardly a concern for those whose homes are valued at $20 million and $ 30 million. Author Steven Gaines, who is considered an authority on the Hamptons, sums it up thus, “This has always been a place for people who could afford to live here. If one can’t, that’s fine……And if that means that you don’t have to wait three days to get a plumber, that’s good, too.”

But experts anticipate that it is the plumbers and other service providers who are likely to face the foreclosures. And too many defaulters could easily affect the economy of the Hamptons as a whole. Real estate agents too feel that no neighbourhood is safe from foreclosures.

Ashley Clark of Brooklyn’s PropertyShark , publisher of real estate research and data, points out that legal default notices and announcements of foreclosure auctions in the Hamptons would rarely be seen in newspapers even two years ago. Today however such notices appear weekly, even though their numbers are limited to one or two. Clark says, “It’s small in actual numbers and in comparison to the rest of the country, but it’s a big change for that particular area.”

ProertyShark data reveals that 415 lis pendens were filed in the five towns on the East End from October 2007 to March 2008. This reflects a 30 percent increase from the previous six months. The data also shows that 42 foreclosure auctions were scheduled for this period, an increase of 40 percent.

Real estate agents put down the foreclosures to the effect of the national foreclosure crisis and say it is no unusual that a few foreclosures will take place in the Hamptons as well. They do not anticipate a crisis and expect long term residents to remain unaffected by the situation.

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The increased foreclosure activity in the country is giving rise to a unique situation where mortgage defaulters are vacating their homes but lenders are delaying foreclosing on it.

One of the fall outs of numerous foreclosures has been the decline in real estate prices. As a result sometimes homeowners find that their properties are worth less than the mortgage on them. In such a situation it is increasingly becoming common for the homeowner to abandon the property without completing all the mortgage payments on it.

The onus of maintaining the property then falls on the lender. But a trend is emerging where lenders are delaying foreclosure for some reason. With no one taking the responsibility of maintaining them the homes then fall into disrepair. This not only affects the resale value of the property but also the home values in the whole neighborhood. Becoming an eyesore, breeding disease and attracting crime are just some of the other consequences of this negligence.

The trend was first noticed in January this year and is a source of worry for observers as lenders are usually expected to dispose of distressed properties as soon as possible.

Various explanations are being given for this trend. On the one hand, city officials attribute it to lenders avoiding taxes and maintenance. On the other hand, legal aid lawyers feel that this maybe a ploy on the part of the lenders to hide heavy losses. Declaring such losses could attract regulators, they believe.

The real estate industry has its own explanation for this phenomenon. Industry officials put it down to the high number of foreclosures that lenders have to deal with. There is so much to handle that delays are inevitable, they believe. Says attorney Berry Laws III, who looks after the interests of lenders during foreclosure, “There’s just a glut. Lenders are overwhelmed with properties.”

In spite of all the explanations, real estate experts continue to be worried as the trend is gradually spreading all over the country. The situation suggests that the actual number of foreclosures may, in fact, be higher than declared by official statistics.

Founder Joe Schilling of National Vacant Properties Campaign believes that with foreclosure being delayed in this way, more and more properties are not being accounted for in foreclosure figures. He says, “What it means is that the crisis is a lot more complex than anybody knows. And the conclusion is that this is going to get much worse before it gets better.”

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According to the Mortgage Bankers Association in USA, about one million homes are in the state of foreclosure. A huge number of people have become homeless due to non repayment of home loans. The first quarter report published by the Mortgage Bankers Association has showed that the foreclosure process of millions of homes have been occurred in various states of USA in 2007.

Banks began to take back the property that was bought with borrowed money since the money was not being paid back as formally agreed earlier. The prices of homes sold in the first quarter have also declined in record numbers. Some of the states in USA which include California, Nevada, Florida and Michigan have exhibited the greatest decline in prices of homes.

According to the Mortgage Bankers Association (MBA), mortgage application volume also declined which has resulted into decline of home prices. People living in most of the states in USA have become homeless and the problem lies in the crisis of the economy. The trend of falling prices of homes also affects the banks and other financial organizations. They have to face a huge amount of loss and the situation is becoming worse day by day.

The rate of foreclosure of homes is higher in states like California and Florida while the Michigan and Ohio are the two states which have faced fewer rates of homes going to foreclosure. Americans have exhibited record rate of decline in home values as well as in the stock market. Considerable amount of damage caused in the stock market and in the economy of the nation. The overall disaster in the US market has damaged the economy, therefore affecting the banks and other financial organizations.

The prices of homes have fallen in 43 states including California and Nevada which faced huge losses with home prices. Due to such conditions, homes have become less valuable assets for the people of America as the nominal decline in home prices affected the economy nationwide.

Hence people are seeking help and call the foreclosure Help Line to take advice on how to save their houses. Various preventive steps have been taken to help the struggling homeowners. In order to offer prevention, mortgage servicers, the borrowers and the companies that manage the loans have taken steps together to fix up the rates of loans.

However to overcome this situation borrowers are coming up with various re-payment plans to the lenders, which might be going to improve the scenario in near future if implemented properly.

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Florida is one of the states that have been hardest hit by foreclosures. It is ranked second only to California in numbers. In March 2008 alone 30,254 homes were foreclosed in the state.

Like the rest of the state, Hillsborough County in Florida too is affected by this situation.The Hillsborough County office records 400 new foreclosures every week. The numbers are high enough to warrant a special service for investors called Foreclosure Disclosure which publishes a list of foreclosures every week.

Foreclosures are distressing for homeowners and mortgage lenders alike. But there is another group of people who are also concerned about the growing numbers of foreclosures. These are the neighbours of homeowners who have had to vacate their homes due to foreclosure.

Jim Blinck, Hillsborough County code enforcement manager, talks about a property that he had to inspect on West Pocahontas Avenue. A fire inside the house has charred the top portion badly. The house has no roof and the interior is full of gang graffiti, beer bottles and trash with a large bee hive in one corner. Piles of ashes and burnt belongings complete the picture.

Blinck believes that it is possibly neighbourhood kids who started the fire. He opines that empty houses are “an attractive nuisance to children. [I] guarantee kids are the first who will know there’s an abandoned house in the neighbourhood.”

Josephine Stoll, who lives next door to this property says, “[It makes me feel] sick. Sorry, I own a home next to it. It’s really bad-looking.”

Residents who live next door to abandoned homes complain about the disrepair and safety hazards that these houses pose. Overgrown, weed infested gardens, pools filled with algae and piling garbage are just some of the things which make these houses eyesores. Add to this the security risks, rising burglaries and anti social activities and the risk of disease and it is easy to understand why many neighbours are being spurned into action.

To report a foreclosure home that has become an eyesore, you can call the county code enforcement department. The property will then be investigated and the home owners contacted. If the situation is not rectified within a stipulated period if time, then the homeowner or company can be fined. The matter first gets passed to the code enforcement board or to a special magistrate, who then decides on and imposes the fine. These fines can vary from $100 to $500 per day. Very high fines can even lead to a lien on the property.

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It has been two years since the property bubble burst but foreclosures continue to be on the rise. Analysts expect the real estate market to rebound eventually but the end of the road still seems far away.

While foreclosures are affecting the economy everywhere, some states have had it particularly bad. States like California, Florida and Illinois together with Michigan, Nevada and Ohio have all been badly affected.

Says Marietta Rodriguez of Neighborworks America, “We anticipate that by this time next year, whole neighborhoods and whole communities will be greatly impacted by vacant property issues.” Created by Congress in the 1970s, Neighborworks America helps increase home ownership.

Research agency, RealtyTrac claims that foreclosures have increased 65 percent since last year. It puts the number of foreclosures in April 2008 as a record 243,353.

According to the Federal Reserve, 2007 saw about 1.5 million foreclosures being initiated. This is 53 percent more than the previous year’s figures.

Several weeks earlier, Randall Kroszner, Federal Governor emphasized that this high rate of foreclosures is viewed by the Federal Reserve as “an urgent problem”. He felt that banks could help improve the situation by working out arrangements with the defaulters that would help avoid foreclosure. Only in extreme cases should they contemplate repossessing the property.

Neighborworks America too has undertaken steps to help distraught homeowners. With the help of the central bank it is identifying communities which have been hit the worst. Neighborworks has a network of over 230 community based groups and this helps greatly in this task. The services of trained mortgage counsellors are then deployed in these areas.

Neighborworks has also initiated a special foreclosure program last year to help keep home repossessions at a minimum.

Individual cities too have started taking action to minimise losses in their area. Baltimore and Cleveland have accused several banks and lenders of promoting high interest loans to buyers who are not aware of the pitfalls these may present. They have started legal proceedings against more than a dozen of these banks and lenders.

The city of Boston on the other hand is buying up vacant homes to prevent them from deteriorating.

Rodriguez warns that the situation is “further complicated because it’s not just one holder of the mortgage.” She explains the loans can often be complicated because the bank has traded mortgage portfolios internationally and the buyer’s portfolio may have been sold to a foreign bank.

Rodriguez, however, has hope for the future as she feels that in recent times, banks have become less rigid and are willing to modify loans.

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