Foreclosures that drag on in the court system for months, even years, are costing Ohio between $24 million and $129 million, according to a new study by Federal Reserve Bank of Cleveland researchers. The study argues that fast-tracking foreclosures of vacant properties could save a lot of money by reducing deadweight losses, such as the accelerated depreciation of these homes and their ultimately lower resale prices.
The quickest foreclosures take about six months in Ohio, but the process averages about 18 months. Although the estimated savings may seem attractive, the belief that such expedited foreclosures would apply only to vacant properties is problematic.
Judicial foreclosure laws in Ohio and other states were written to safeguard owners from having their homes immediately taken out from under them by creditors because of a defaulted loan or unpaid property taxes. The process is not perfect, but extended stays often allow those who have lost household income because of unemployment, reduced work hours, or catastrophic illness the time to save enough money to relocate, or work out monetary arrangements with family members or creditors.
The Cleveland Fed study concedes: “Crafting legislation that adequately balances the interests of creditors and homeowners while meaningfully fast-tracking foreclosures is no simple task, and would likely require the input of creditors, communities, foreclosure attorneys, and the judiciary.”
Ohio’s housing market is rebounding, as is its overall economy, but there were still more than 70,000 foreclosures filed in 2012, the latest year for which figures are available. Imagine the effect on those individuals and families, with few or no options, who were forced out of their homes within weeks.
It would be nearly impossible to identify which properties have been abandoned. Would bank employees and local government officials drive by or peer through windows to determine whether the homeowner still bunks there?
The study’s assertion that vacant properties could be moved more quickly through the court system by holding a single hearing is questionable. If a homeowner doesn’t respond to the hearing notice, the property could be transferred to the lender or put up for sale earlier, the researchers suggest.
Someone who is facing foreclosure is likely hounded by numerous creditors and may not be able to respond immediately. Yes, Americans are responsible for their pocketbooks and should behave as adults who meet their responsibilities.
But foreclosure is scary, and phone calls and letters may be initially overwhelming. Some homeowners signed on for mortgages that were beyond their means. But there are also victims of the financial crisis who were approved for mortgages they could never afford.
The Fed study reinforced actions in the General Assembly. Last year, bipartisan fast-track foreclosure legislation for abandoned properties was introduced in the state House. The bill is in a committee and is expected to reach the House floor this year.
If this measure moves forward, lawmakers must consider the dire consequences of potentially pushing tens of thousands of Ohioans onto the street. Unless there are guarantees that only abandoned homes will be fast-tracked for foreclosure — and how could there be such guarantees? — this legislation needs to be sidelined.
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