Still eying that foreclosure next town over as a potential upgrade? Renters might beat you to it before long.
The federal government is weighing ways to help banks rent out the homes they seize via foreclosure and other means, in hopes it will help temporarily rejuvenate communities saddled with empty and neglected properties.
Since August, the Federal Housing Finance Agency has received some 4,000 contributions nationwide as it mulls a standardized program for helping banks rent the houses they now own.
In a letter to members of Congress, the Federal Reserve Board of Governors said no such program currently exists. The Fed envisions one of three options: banks could rent the properties directly, sell the properties to third-party investors who would do so, or create joint ventures to rent properties.
The Fed noted the success of so-called land banks in Cleveland, Detroit and elsewhere that manage languishing properties until viable owners surface. Last year, Connecticut passed a law authorizing the creation of land banks.
Statewide, there were 15,600 foreclosure cases filed in the fiscal year ending June 2011, according to the Connecticut Judicial Branch, about 4,000 of them in the Fairfield County area. Under state law, foreclosure cases can be subject to mediation in an attempt to help homeowners work out loans while maintaining their residences; the Judicial Branch issued mediation certificates in about 1,700 of the Fairfield County area cases in fiscal 2011.
Well over 600 foreclosed homes in Fairfield County were listed for sale on a website maintained by RealtyTrac Inc., with more than 600 additional homes in payment default status to the degree that they could enter foreclosure. Opportunistic shoppers and investors continue to snap up bargains where they find them, from a $110,000 house in Danbury to one that auctioned for $2 million in Darien.
Including properties held by Fannie Mae, Freddie Mac and FHA, the Fed estimates that fully one-quarter of the some 2 million vacant homes for sale are real-estate owned (REO) ”“ those held by banks and other companies following foreclosures. Banks have a avoided packaging properties for bulk sale, according to the Fed, believing they can get a better return by selling to people who intend to live in the houses.
“Banking organizations are not permitted to engage in real estate ownership or property management, and supervisory policy typically encourages banking organizations to dispose of REO property as early as practicable,” the Fed wrote in a white paper forwarded to Congress in early January. “However, current law clearly contemplates some scope for REO ownership to last beyond the fastest-possible disposition.”
Federal rules allow banks to rent properties held for sale, but they are expected to make “good faith” efforts to find a buyer within a five-year window.
