The Chicago Tribune has taken on lenders over the devastation that has befallen neighborhoods while they sit back and let property deteriorate. I’ve noticed a phenomenon in my practice when I’ve researched properties in foreclosure that have code violations. Lately I am seeing more and more foreclosure actions that are stalled after the lender obtains a judgment of foreclosure. No sheriff sale takes place or the sale is canceled. The lender doesn’t take the steps to get the deed and tells the local government that it’s not responsible for the property even though the owner is long gone. The article in the Tribune discusses the consequences of such business practices:
Such legal maneuvers by banks, which in many cases either walk away from properties that aren’t worth selling or let foreclosure proceedings languish in an overwhelmed court system, have left thousands of dilapidated vacant houses in ownership limbo citywide.
At the same time, the financial industry is fighting against proposed legislation in Illinois that would make it responsible for the upkeep of a property once a foreclosure suit has been filed if the property is vacant.
Insurance companies can be allies in the fight for life/safety compliance. They have considerable power over property. If persons insured by the companies don’t live up to the standards of the policy, they may lose their insurance benefits. A judge in Massachusetts has ruled that an insurance company does not have to pay for a fire that occurred at a restaurant because the owner did not properly maintain a fire suppression system. The Insurance Journal reports:
At issue is an exclusion in a commercial lines policy issued to the French King restaurant in Erving, which required the restaurant owner to maintain a fire suppression system. The insurer — Interstate Fire & Casualty Co., a subsidiary of Fireman’s Fund — claimed that the fire-suppression system installed at the restaurant was obsolete, and therefore triggered the exclusion and did not require them to indemnify the restaurant.
The court agreed and ordered the restaurant to pay back the $15,000 advance given to the owner before the investigation was completed. I’ve always wished there was a separate registry of properties and their insurance companies so inspectors could alert the insurance company about dangerous conditions. (I make no comment as to whether this might violate privacy laws in some states). Most owners will act so they don’t lose their insurance unlike the owner in this case. The article said that the owner could have upgraded his system for $3,250. Unfortunately, fire inspectors have to repeatedly try and obtain compliance because of the real threat of fire while some owners only see the extra cost to themselves when asked to comply.
The creator of Phonehenge, a collection of oddball structures I’ve previously written about, has been sent to jail for disobeying a court order to demolish the buildings which were built in violation of numerous codes. Contempt of court is a useful procedure that is used when a person disobeys a court order. The court usually imposes a fine or jail until the person complies with the order of court. This is probably the most powerful tool that exists to force defendants to comply with the code. While I have filed many petitions for rule to show cause why a defendant should not be held in contempt of court, very few people have failed to comply and a tiny amount have actually been jailed. Just the threat of going to jail is usually sufficient to inspire a defendant to comply. Mr. Fahey, the defendant in the California case, has been defiant, according to the court. Defendants can be jailed for violating court orders even though jail time is not a possibility for the offense itself. Contempt requires a separate procedure from the code violation.
The Chicago Tribune has a very good article about how vacant properties (due to the foreclosure crisis) are decimating poor communities because of the increase in crime. This is something that I speak about at length when I teach my class on the relationship between law enforcement and code enforcement. These vacant buildings are crime magnets and can’t be torn down quickly enough. Vandals steal everything and anything from these buildings so people who might want to invest in and rehab them walk away in frustration. The remaining residents live in fear as the neighborhood gets even worse. It’s a pretty depressing tale but important to know about.
Thirteen percent of U.S. homes are now vacant according to a new report in the Huffington Post. Prices are dropping but people who have the money to buy are reluctant to enter the housing market fearing prices will drop even more. I think we’d hope that by now things would turn around but I’m not seeing much change in the areas around the country where I do seminars. I’m very concerned about properties that still appear to be owned by individuals but that the lenders actually own. Recently I was researching a property that the former owner told us he turned over to a lender last summer. He was right. We didn’t know though because the lender had never filed the necessary paperwork with the Recorder of Deeds. Consequently, all notices of violation went to him and not the lender. Whether this was an oversight or intentional, I have no idea but it sets us back even further in identifying the responsible party. I’m also seeing a number of judgments for foreclosure where the sheriff”s sale has never taken place. Sometimes this is due to a bankruptcy being filed but in other cases it remains a mystery. This is why ordinances to make lenders responsible for the upkeep of the vacant property prior to a foreclosure judgment are so critical to preserving neighborhoods.
