1 A Tale of Two Recoveries Discrimination in the Maintenance and Marketing of REO Properties National Fair Housing Alliance 2012
2 Purpose of Investigation This investigation begun by the National Fair Housing Alliance in 2009 was conducted to examine whether or not disparities based on the racial and/ethnic composition of the neighborhood existed in the maintenance and marketing practices implemented and used by major banks and preservation management companies in the care of real Estate Owned (REO) properties. Overall, REO properties have suffered from a disproportionate amount of negligence and maltreatment by banks/servicers in communities of color, and it has resulted in a litany of adverse effects on the residents of these neighborhoods. Financially and otherwise, the blight brought upon African- American and Latino neighborhoods as a result of poor maintenance and marketing practices of REOs has also affected and harmed potential homeowners, individuals who have purchased REO properties, current homeowners and the local governments that have jurisdiction over these communities of color.
3 Methodology for Investigation Neighborhoods were either predominantly White or predominantly Latino, African-American, or a combination of both. Neighborhoods selected had recent high foreclosure rates in the zip codes evaluated. 100% of REOs were evaluated within the zip codes targeted.
4 Evaluation Measures Curb Appeal Accumulated mail, trash, overgrown or dead grass/shrubbery, invasive plants Structure Unsecured/broken doors, locks, windows, damaged roof, fence, deck, holes, wood rot Signage Trespass/warning signs, bank owned, For Sale signs, broken/discarded signs, unauthorized occupancy
5 Evaluation Measures Paint/Siding Graffiti, severe peeling/chipped paint, damaged siding, missing/broken shutters Gutters Missing, out of place, broken, hanging, obstructed Water Damage Mold, water damage, erosion Utilities Tampered with or exposed
6 It s the Law
7 Federal Fair Housing Act The Fair Housing Act has two goals: to eliminate housing discrimination and to promote residential integration HUD s regulations interpreting the Fair Housing Act state: It shall be unlawful because of race, color, religion, national origin, sex, familial status or disability to restrict or attempt to restrict the choices of a person by word or conduct in seeking, negotiating for, buying or renting a dwelling so as to perpetuate segregated housing patterns, or to discourage or obstruct choices in a community, neighborhood or development.
8 Federal Fair Housing Act The differing maintenance of REO properties based on the racial or ethnic composition of neighborhoods is a violation of the Fair Housing Act. HUD s regulations clearly state that failing or delaying maintenance or repairs of sale or rental dwellings because of race... is a prohibited action under the Fair Housing Act.
9 Federal Fair Housing Act Steering by real estate agents based on neighborhood racial composition is illegal and other behavior in the sale or rental market that operates to discourage potential buyers from purchasing or renting homes, such as by failing to adequately maintain properties in communities of color, can also violate the Act. It is unlawful to make unavailable or deny housing to any person because of race, national origin... If the poor maintenance of an REO property in an African- American or Latino neighborhood makes it difficult for a potential purchaser to obtain a mortgage loan for the property or even homeowners insurance, the poor maintenance has made the housing unavailable within the meaning of the Act.
10 Overall Findings 1,036 properties evaluated for this investigation revealed a pattern of consistently poorer maintenance in communities of color than in White communities. REO properties in White communities were more likely to be marketed with the professional For Sale signs than communities of color.
11 Overall Findings Newer homes generally scored higher than older homes, but disparities still existed with non-structural factors such as curb appeal and signage. The data revealed that newer REO properties in White neighborhoods received more consistent care and were marketed better than newer properties in neighborhoods of color. REOs built after 1990 in predominantly White communities received an average score of 90, while the overall score for REO properties built after 1990 in African-American communities was an 81.
12 Overall Findings Neighborhood Surveys 30% of those surveyed in communities of color stated that they had observed routine and consistent maintenance of their neighboring REO properties. 54% of the surveys from residents in predominantly White communities reported observing routine and consistent maintenance of neighboring REOs. 20% of residents in communities of color reported seeing home improvement contractors working on the neighboring REO property. nearly 40% of neighbors in predominantly White areas stated they had seen home improvement contractors working on the neighboring REO property.
13 Overall Findings Proper maintenance and marketing of REO properties is a key factor in the sale of homes to owner-occupants. NFHA tracked 90 homes in metro DC after at least 6 months on market Properties scoring 80+ were 6.25 times more likely to bought by owner- occupant. 59% of poorly maintained REOs were bought by investors.
14 Findings By Metropolitan Areas
15 Dayton, Ohio
18 Opportunity Map
19 Dayton, Ohio Not a single REO property in African- American neighborhoods scored above 90 on the 100-point scale.
20 Dayton, Ohio 60% of REOs in African-American neighborhoods had broken or unsecured doors. Only 18% of REOs in White neighborhoods suffered from this problem.
21 Dayton, Ohio The top property is located in an African American neighborhood. It was structurally in shambles. The front door was broken down, windows were broken or missing entirely, and the outer walls were damaged. Notice leaves that were never raked. The home at the bottom is the next door neighbor. It is well maintained, but the blighted REO affects its value. Notice the mattress from REO next door.
22 Dayton, Ohio 40% of REOs in African-American neighborhoods had broken or boarded windows. Only 21% of the REO homes in White areas had windows broken or boarded.
23 Missing Gutters Fixing and replaces portions of gutters and downspouts are inexpensive repairs that preserves roofs and foundations.
24 Dayton, Ohio Marketing is a vital and necessary activity to attract owneroccupants. Too many REOs in African American neighborhoods are marketed as distressed property with auction, no trespassing and warning signs instead of For Sale signs.
25 Dayton, Ohio An alarming 84% of homes in African-American neighborhoods had no For Sale sign. How do people driving through the neighborhood even know these REOs are for sale?
26 Missing For Sale Signs
27 Dayton, Ohio REO properties in White neighborhoods are maintained better. Compare the REO on the right with the neighbor s home on the left. Both have manicured lawns, no leaves left over and are equally attractive.
28 Atlanta, Georgia
30 Atlanta, Georgia 187 REO homes were evaluated. 32% of REOs in African-American neighborhoods had more than 10 deficits, while not a single property in White neighborhoods had more then 10 deficits.
31 Atlanta, Georgia It was hard to score this relatively new home because the weeds, bushes and vines were so overgrown. There was a fire and clearly the bank chose not to repair the home or even continue to maintain the home.
32 Blighted REO Brings Down Whole Neighborhood REO and well maintained neighboring homes.
33 Atlanta, Georgia This REO located in a middle income Black neighborhood is board up and no routine maintenance has been performed. No repairs were completed after the fire. The neighbor s home value suffers because of the eyesore next door.
34 Atlanta, Georgia 31% of REOs in African-American neighborhoods had unsecured or broken doors. Only 14% of REOs in White areas had the same problem.
35 Accumulated Trash If the bank had performed weekly maintenance this trash would not be here.
36 Atlanta, Georgia REO properties in African-American neighborhoods were nearly 4.65 times more likely than homes in White neighborhoods to be missing a For Sale sign on the property. So if you are a buyer looking for home - you would never know these nice REOs are even for sale.
37 Again -- Failure to Market Homes in African American Neighborhoods with Professional For Sale Signs
38 Atlanta, Georgia Warnings signs are typical on REOs in Black neighborhoods.
39 Atlanta, Georgia This home reflects typical maintenance and marketing of the REO properties in White neighborhoods.
40 Miami/Fort Lauderdale, Florida
42 Miami/Fort Lauderdale, Florida 46% of REO properties in African -American neighborhoods had broken windows. 25% had broken or unsecured doors. 50% of REOs in Latino neighborhoods had unsecured or broken doors. 30% had broken or boarded windows. In White neighborhoods only 16% of homes had unsecured doors. 16% had broken windows.
43 Miami/Fort Lauderdale, Florida This home scored 46 = F There was damage to the outer walls both in the front and back of the home, as well as water related damage (i.e. wood rot, mold, etc.)
44 Miami/Fort Lauderdale, Florida The back doors to the home are missing and you can see straight through the home to the front doors.
45 Miami/Fort Lauderdale, Florida Missing back door and broken back door invites vandals and exposes the home to water damage from storms.
46 Miami/Fort Lauderdale, Florida Open windows and doors expose the home to storm damage and invites vandalism.
47 Miami/Fort Lauderdale, Florida Too many REOs do not have air conditioning running to reduce the humidity and stop the growth of mold. Open windows allowing moisture inside simply compounds the mold problems.
49 Windows and Doors Left Open
50 Home in African American Neighborhood No For Sale Sign Recently spray painted poor job No cleanup
51 Overgrown Yard
52 Miami/Fort Lauderdale, Florida Homes in White neighborhoods are generally well maintained.
53 Dallas, Texas
55 Dallas, Texas 115 REO Evaluated Trash on properties: 60% of REOs in African-American neighborhoods 68% of REOs in Latino neighborhoods and 73% of REOs in predominantly non-white neighborhoods had trash on their properties Only 37% of communities in White areas had the same problem.
56 Dallas, Texas 75% of REOs in African-American neighborhoods had overgrown grass, dead grass and poorly maintained lawns Only 32% of REOs in White neighborhoods suffered from this curb appeal issue.
57 Missing For Sale Sign This home is missing its for sale sign and Needs repair to damaged brick to be marketable.
58 Holes, Trash and Broken Doors invite rodents and water damage
59 Metro Washington, DC
61 Metro Washington DC 235 REO Evaluated REOs in African-American neighborhoods were nearly 5 times more likely to have a broken gutter and 2 times more likely to have a missing gutter than REOs in White neighborhoods. Neglecting these types of structural maintenance issues in communities of color devalues the homes and can lead to significant water damage.
62 Metro Washington DC 83% of REO properties in African-American neighborhoods had more than five maintenance problems 61% of REO properties in White neighborhoods had more than five maintenance problems. Significantly fewer REOs in White neighborhoods.
63 Overgrown lawns
64 Broken Windows, Trash, No For Sale Sign
65 REO in SE Washington, DC Removing trash and applying a coat of paint would improve this REO and stop blight in this SE DC neighborhood.
66 Baltimore Metro
68 Baltimore Metro 120 properties were evaluated in Baltimore City and the surrounding region, including Anne Arundel, Howard, and Baltimore Counties. 43% of Baltimore REOs in African-American neighborhoods had boarded up windows, while this only occurred in 28% of homes evaluated in White neighborhoods. 72% of REO properties in African-American neighborhoods had a significant amount of trash on the premises.
69 Baltimore Metro NFHA staff documented that in urban African-American neighborhoods in Baltimore, whole blocks were boarded up and visibly vacant, with poor curb appeal, and minimal signage. Too often for sale signs were laying on the ground and not of the same quality as found in White neighborhoods.
70 Homes in African American Neighborhoods with No For Sale Signs
71 African American REOs Overgrown Yards
72 Phoenix, Arizona
74 Phoenix, Arizona Phoenix, Arizona, is one of the markets hit hardest by the foreclosure crisis. 72% of REOs in Latino neighborhoods, especially Maryvale, suffer blight due to neglect by banks. 40% of homes in Latino neighborhoods had unsecured or broken doors and locks and broken or boarded windows. 0nly 6% and 19%, respectively, of homes in White neighborhoods had these maintenance problems.
75 Phoenix, Arizona 73% of REOs in Latino communities had more than 5 maintenance problems, compared to only 25% of homes in White neighborhoods. 73% of REO properties evaluated in Latino neighborhoods were missing a For Sale sign. 11% of REOs in Latino areas were marketed as distressed and only one property in a White neighborhood was marketed as distressed.
76 East Bay, California Oakland, Richmond, Concord
78 East Bay Area, California NFHA evaluated 140 REO properties in Oakland, Richmond, and Concord, California. REOs in Latino neighborhoods were 740% more likely to experience more than 10 deficits REOs in African-American homes were 200% more likely to experience more than 10 deficits and REOs in other communities of color were 360% more likely to experience more than 10 deficits, compared to REOs in White neighborhoods.
79 East Bay Area, California
80 East Bay Area, California REOs in the African-American neighborhoods in the East Bay Area were 3.45 times more likely to not have a For Sale sign than their White counterparts. Similarly, Latino homes were 92% less likely to be marketed with a for sale sign.
81 Trash and Overgrown Yard at Oakland REOs
82 Trash at Richmond REOs
83 None of these Richmond homes has a For Sale sign.
84 Philadelphia, PA
86 Philadelphia, PA 41% of homes in African-American neighborhoods had over 10 maintenance or marketing problems while none of the homes in White areas had more than 10 maintenance or marketing problems.
87 Overgrown Grass
89 Recommendations Select local vendors with experience in neighborhoods Detail expectations and incorporate oversight of all vendors Monitor marketing and sale of REOs with testing Make REO Data Transparent and Publicly Accessible on websites Use REOs to Expand Housing Opportunities Banks offer down payment assistance grants Banks remove overlays on FHA, Fannie and Freddie underwriting Stop auctions to foreign investors