Vacant homes spread blight in suburb and city alike

In Mesa, Ariz., officials are trying to decide what to do about boarded-up McMansions that become party pads, trashed in raucous "raves" where invitations come by text message.

In Atlanta, thieving from abandoned properties is so bad that police caught one man building a new house entirely of pilfered materials from empty homes.

Flint, Mich., has had to add firefighters and ladder trucks recently even though its population has declined. Up to 90 percent of fires start in homes where no one lives.

From Atlanta's urban core to leafy neighborhoods filled with chirping crickets in Charlotte, N.C., some 2.2 million homes are expected to go through foreclosure – and stand empty – by the time the mortgage meltdown ends, according to Global Insight, an economic research firm. As the housing dominoes fall far from Wall Street, growing urban "ghost towns" of vacant houses are resulting in a costly crush of weeds, trash, and dereliction on a scale unseen in American cities since the Great Depression, economists say.

As a $4 billion package to help municipalities deal with foreclosure-related blight hangs fire in the US Senate, US mayors met last weekend in Miami to vent about the scourge of abandoned homes. Cash-strapped cities are now scrambling – often using on-the-fly ingenuity – to rescue neighborhoods suddenly vulnerable to crime and stunned by millions of dollars in lost equity wrought by loose credit, opportunistic speculators, and predatory lending.

"Economists and folks from the lending industry will talk about it as a market correction, which doesn't adequately describe it," says Joseph Schilling, an urban affairs professor at Virginia Tech's Metropolitan Institute in Blacksburg. "This isn't just blight in the urban core; it's blight and abandonment in new suburban communities, and that's just never happened before."

In some Sun Belt cities like Orlando, Fla., and Charlotte, officials have tripled or quadrupled the number of liens they've placed on vacant homes in the past year, hoping to recoup at some point the money cities are spending to try to keep the properties from going to ruin. In California and Arizona, neighborhoods of half-million-dollar homes stand nearly empty, with some lonely residents using their former neighbors' yards as driving ranges. Meanwhile, long foreclosure lag times and uncooperative note-holders mean swimming pools go green, rain gutters fall off, weeds grow high, and ne'er-do-wells move in.

Some 44.5 million homes in the US now stand next to an empty house, resulting in a drop of at least $5,000 in property value per house. By that calculation, a total loss of home value of $220 billion across the US can be attributed to the vacancy problem.

"This is a man-made disaster that's had more dramatic impacts on real estate markets than natural disasters [have]," says Bruce Katz, a housing analyst at the Brookings Institution, a think tank in Washington. "In a way, we have a lot of mini-Katrinas across the country."

Banks and other mortgage lenders acknowledge they've been overwhelmed by the sheer number of foreclosures, finding themselves ill-equipped to be long-term landlords of so many properties. But they say the problem is complex, and that a long foreclosure process and the fact that people walk away before trying to work with lenders to rescue their mortgages also play into the dereliction of many neighborhoods. Last year, mortgage lenders helped 889,000 families avoid foreclosure and stay in their homes, according to the Mortgage Bankers Association website.

"You can guarantee that none of our members wants to be a landlord," says John Mecham, a spokesman for the Mortgage Bankers Association in Washington. "Of course, we can also see where local officials are coming from – abandoned and distressed properties are not only a blight, but they drive down property values for entire neighborhoods."

On Drummond Street

One such place is Drummond Street, in the shadow of Clark Atlanta University. On what was once a lively street, half the bungalows and shotgun-style houses are boarded up, with trash strewn about. Here, as elsewhere, the falling market has pierced holes in inflated appraisals used to write mortgage notes.

Bobby Todd, who has lived here 35 years, now sweeps sidewalks and trims hedges around the empty homes next to his. The mostly young, college-educated speculators bought new pickup trucks with money that he says should have gone into fixing up the houses – and then left when the market tanked. Mr. Todd himself is out nearly $7,000 in carpentry work he did on the homes.

"They thought they could come make a profit, but they didn't and they just left it," he says. "I'm an old man, and now I'm working for free."

Farther down Drummond Street, a vagrant moved a bed, a bureau, and other furniture into a boarded-up bungalow, and eventually started a fire that nearly burned the house down, say Joe Strotter and Bernice Roberts, owners and managers of the property. They've now found a tenant but are waiting until move-in day to replace stolen appliances. "People watch, and when they see a house stand empty for a while, they either empty it out or move in," says Mr. Strotter.

Boarded-up homes are an expensive problem for Atlanta, which has already posted "no trespass" signs at as many homes this year as in all of last year. Vandals break in and pilfer copper wire and kitchen fixtures. Then vice moves in, including prostitution and drug dealing. In Charlotte, the overall crime rate has remained flat, but crime in several new but mostly empty suburban areas rose by 33 percent from 2003 to 2006.

In one Atlanta neighborhood, speculators who can't sell homes they'd hoped to "flip" pay homeless men to stay in the dwellings to watch over them. With 11 code enforcers laid off because of budget cuts, Atlanta police are working overtime to patrol blighted streets. "The responsibility is falling more heavily on our shoulders," says Atlanta Police Maj. Joseph Dallas.

That has mayors like Jerry Abramson of Louisville, Ky., worried – and a bit mad. Mayor Abramson calculated that his crews, in one month, spent $102,000 to mow lawns, fix gutters, and empty green pools at foreclosed properties. But even after putting a lien on a property – which should be paid out when the place finally sells – cities seldom collect on those debts. Abramson picked up the phone and called lending executives at Wells Fargo and Countrywide himself to, only half-jokingly, demand repayment.

"All of a sudden what dawned on me was that taxpayers were protecting the assets of banks and mortgage companies," Abramson says in a phone interview.

How cities are coping

Local ingenuity is offering some hope, says Jim Brooks of the National League of Cities (NLC) in Washington.

In Trenton, N.J., city officials asked priests, imams, and rabbis to make congregations aware of new public and private efforts to help people stay in their homes rather than letting them slide into foreclosure.

In Flint, Mich., a new land-banking program allowed the city and county to leverage $2 million worth of investments into $35 million worth of renovations on derelict foreclosed homes – an innovation other cities may replicate.

Wilmington, Del., has started ticketing property owners quickly for code violations, instead of using the traditional code-enforcement ritual that can take months to complete.

And Pembroke Pines, Fla., is weighing whether to assume mortgages on delinquent homes occupied by renters, so the home won't end up standing empty.

In Washington last week, the Senate cleared the way for a mortgage-relief bill that includes $4 billion to help cities buy and refurbish foreclosed properties.

The White House, however, has threatened to veto the bill over that provision, saying it's an expensive earmark that will primarily benefit the very lenders who loaned money rashly.

The debate is expected go to into July, but experts agree that Washington will play a major role in how cities deal with growing inventories of dark-windowed homes.

"It's fair to say there's a window of opportunity here, with the force of local grass-roots efforts coming from the bottom up and some assistance from Congress and states coming from top down," says Mr. Brooks at the NLC. "That's the policy you'd want, and when they meet, good things happen. We need them to meet now."