The voices of Urban Institute's researchers and staff
January 22, 2017

Communities cannot wait for federal action on unsafe foreclosures

January 23, 2017

As the number of home foreclosures declines in most areas of the country, a new wave of unsafe houses called sick homes have exited foreclosure only to be resold to unknowing residents, harming families and communities. Each exploitative sales agreement can be a catalyst for community blight and reflects a systemic problem that calls for immediate collective, community action.

In a series of articles published in 2016, New York Times reporters uncovered a new scheme where property speculators profit multiple times from a single foreclosed property at the expense of families and communities. This new cadre of flippers have purchased thousands of substandard homes through Fannie Mae bulk sales, made minimal repairs, and entered into unfair contracts, without the protections of traditional mortgages, with families who often cannot qualify for conventional financing. Through the seller-financed deals, full responsibility for repairs falls to the buyer, and the property reverts to the seller upon default.  

Many sick homes being sold contain lead paint, mold, leaking roofs, and safety hazards that are costly to fix and pose serious threats to vulnerable populations, such as children and the elderly. Families think they are achieving the dream of homeownership, but are often more precariously housed than before. In an editorial earlier this month, the New York Times called for the next secretary of the US Department of Housing and Urban Development to rein in this unsavory business practice. But communities need to take immediate action to prevent blight from spreading and to protect vulnerable residents while waiting for potential policy solutions.

Public health research shows that poor children, particularly children of color, living in dilapidated urban homes have dangerously high blood lead levels that can irreparably harm their health and impede future development. A 2016 Cleveland study of children entering kindergarten during the peak years of the mortgage foreclosures crisis (2007–10) found that living in or around a substandard or foreclosed home contributed to lower literacy scores and was associated with a greater risk for child maltreatment, residential instability, and elevated lead levels, all of which affect literacy scores.

But the problem goes beyond health. The community blight generated by the sale of sick homes to people who generally cannot afford to fix them is a multifaceted problem that includes financial, cultural, and racial realities. Many of the unsuspecting victims profiled in the Times’ series are low-income African American and Latino families, who enter one-sided arrangements with the dream of owning a home. When they find out that house is unfit and unhealthy and that they are responsible for bringing it up to code, they are left with few options but to walk away from the home and forfeit any money they invested into it.

While the property cycles through additional families, the community costs grow. Research has documented that foreclosed and blighted homes negatively affect nearby home values, local government budgets, and broader community well-being. Once a foreclosed home becomes vacant, crime increases in and around the property and in the neighborhood.

These are problems that one agency or one public policy alone cannot resolve, but multiple entities acting collectively can begin to address them right away. An effective solution should build on community buy-in and leadership, because neighborhood residents, organizations, and local governments have the most to lose if this problem is not addressed quickly. Community-based organizations and the local residents that power their efforts can be the eyes on the street, offering information to support official action. By being a clear and reliable partner for community-based efforts, localities can ensure their residents’ safety and financial protection.

Local governments can act immediately in many roles. Housing code inspectors can team with local public health inspectors to investigate, educate, and enforce their respective regulations against unscrupulous companies. Law clinics and legal assistance agencies can assist families displaced by such unjust business practices. Doctors, clinics, hospitals, and health care companies can document the scale and severity of the sick home syndrome in their community, with help from schools of public health and data intermediaries. Such data can help municipal attorneys and prosecutors make sure companies repair and rehabilitate these properties.

A more permanent solution would require federal and state collaborations, including action from state attorneys general, federal regulators, and Fannie Mae. But until that happens, local governments can take immediate and concrete steps to protect vulnerable residents. 

Lola Holten has lived in the Fitzgerald Community of Detroit for 40 years. Her neighborhood has many abandoned and boarded up homes in it, including seven vacant dwellings surrounding her home. Photo by Michael S. Williamson/The Washington Post via Getty Images.

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