Running head: IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 1

Transcription

1 Running head: IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 1 The impact of foreclosed homes in the Borough of Pitman Ryan Pierson Pitman Fire Department, Pitman, New Jersey

2 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 2 CERTIFICATION STATEMENT I hereby certify that this paper constitutes my own product, that where the language of others is set forth, quotation marks so indicate, and that appropriate credit is given where I have used the language, ideas, expressions, or writings of another. Signed:

3 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 3 Abstract The problem is the Borough of Pitman is facing a high percentage of residential housing stock that is becoming abandoned through foreclosure. The purpose of this applied research project is to evaluate the impact this growing number of properties is having on the community and define the problem and how this affects residents and the community as a whole. A descriptive research method was employed to determine why the number of vacant properties is increasing in the Borough of Pitman, if these properties are causing an increase on demand for public services, how these properties are affecting the financial stability of the community, and what can be done to reduce the risk to the community posed by these properties. Through research and interviews with personnel directly involved with this problem, a number of steps the municipality can take to address this problem and improve the safety and well-being of the community as a whole were determined. These include proactive enforcement efforts, registration fees for vacant homes, tax sales and utilizing government programs to get vacant homes reoccupied.

4 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 4 Table of Contents Abstract...3 Table of Contents....4 Introduction. 5 Background and Significance..6 Literature Review....9 Procedures..15 Results 17 Discussion.. 26 Recommendations..30 Reference List 35

5 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 5 Introduction The foreclosure crisis in America is affecting communities nationwide. The Borough of Pitman is no exception. With the subprime lending crisis, properties throughout the borough are becoming vacant through foreclosure. Many of these properties are sitting vacant for extended time periods and falling into a state of disrepair from a lack of maintenance by lenders. Municipal officials in the Borough of Pitman estimate that the number of vacant and abandoned properties is between 200 and 250. That is a significant number when compared to a housing stock consisting of 3,923 housing units in the 2.3 square mile municipality. Current home foreclosures are spread throughout entire communities, no longer occurring solely in neighborhoods that are already crime-prone and economically depressed. Many are clustered in middle-class or revitalized neighborhoods that were the result of the housing boom of the last decade. (Wilson & Paulsen, 2008) The numbers vary through Pitman, with the majority being in areas with homes valued in the $265,000 range. As can be expected, residents having abandoned homes in their neighborhoods are concerned since these properties can quickly become targets for crime, drugs and squatters. Since these properties are privately owned, code enforcement personnel are limited in what they can do to get the property cleaned up. Local governments can only become the owner of these properties through tax sales or lien delinquencies. Enforcement personnel must locate, notify, and encourage property owners to maintain their properties in compliance with the minimum standards for property maintenance. (Schilling, 2004) The problem is the Borough of Pitman is facing a high percentage of residential housing stock that is becoming abandoned through foreclosure. The purpose of this applied research project is to evaluate the impact this growing number of properties is having on the community

6 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 6 and define the problem and how this affects residents and the community as a whole. This study will be performed using a descriptive research method to answer the following questions: a) Why is the number of vacant properties increasing in the borough of Pitman? b) Are these properties causing an increase on demand for public services? c) Are these properties affecting the financial stability of the community? d) What can be done to reduce the risk to the community posed by these properties? Background and Significance Pitman is a borough, located in Gloucester County, New Jersey. It was formed from land originally located in Mantua and Glassboro Townships, and is named after Reverend Charles Pitman. In its early beginnings, Pitman was mostly part of Mantua Township, with some acreage in Glassboro Township. In 1871, land in this section of Gloucester County was chosen for a new Methodist summer religious camp, as it was "convenient and desirable" land, which included good sources of water. On March 17, 1872, under the sponsorship of Reverend Perry, presiding elder of the Bridgeton District of the Methodist Church, the New Jersey Conference Camp meeting Association was formally chartered. They had the authority to adopt ordinances governing people within the bounds of their area. The land that became known as "Pitman Grove," was purchased in several parcels by the New Jersey Conference Camp Meeting Association. The first parcel was bought from West Jessup of Mantua Township and contained sixty acres. Later on approximately ten more acres were purchased from Joseph Jessup in order to insure that the Camp Meeting had land between the turnpike and the railroad. Even more parcels of land were bought later and eventually the Association owned land at what was later known as Summit

7 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 7 Avenue and extending west through the Grove section to Cedar Avenue, including a strip west of Cedar Road to Alcyon Lake. At first, the only homes built on this land were for summer use, and were for the use of Methodist ministers and their families. As time passed, these families sold their buildings to persons not in the ministry. As time passed, greater numbers of people made permanent homes. Some of the summer residents in the cottages began to stay year-round. By 1886 approximately 400 cottages were present within the Grove and in outlying areas. Issues arose with Glassboro Township over the proposed boundary lines, especially in the Glen Lake and Pitman Hills sections. To settle that dispute, and go forward with incorporation, eventually the new borough contained mostly land originating from Mantua. Pitman officially incorporated as a borough on May 24, 1905 when Governor Edward C. Stokes signed the Avis Bill. (Austin & Pierson, 2012) The Borough of Pitman currently consists of 2.3 square miles of mostly residential properties. According to the 2010 census, the permanent resident population is 9,551 residents. The borough has 3,923 housing units with 74.1% being owner occupied and 25.9% renter occupied ( =DEC_10_DP_DPDP1) Pitman has an uptown business district consisting of many small shops with apartments above, small restaurants and a 1200 seat theater built in the 1910 s that has recently undergone a major restoration. The borough is home to multiple apartment complexes, some light industrial facilities and a large nursing home. A majority of the buildings were built in the early 1900 s thus providing a significant fire load and risk of conflagration. The current assessed value of real property within the Borough of Pitman is $586,966,843. The average assessed home value is $167, with a tax rate of cents per $100 of assessed value

8 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 8 according to the tax collector for the Borough of Pitman. (B. Walls, personal communication, August, 2013) Pitman is a full service community with its own municipal government and school district. The local government provides full time police protection, public works, water and sewer service, tax collection, public library, recreation, and code enforcement services. Fire protection is provided through two volunteer fire companies, the Pitman Fire Company #1 and the Highland Chemical Engine Company, with a combined 110 active volunteer members. Code enforcement is handled through multiple part-time employees handling specific disciplines. This applied research paper (ARP) is being conducted as part of the Executive Analysis of Community Risk Reduction course at the National Fire Academy as part of the Executive Fire Officer Program (EFOP). This class addressed the value of community risk reduction and how fire service personnel can apply risk reduction to the community. It stressed the importance of developing partnerships with the community to implement programs, initiatives, and services with the goal of preventing and reducing the risk of human caused or natural disasters. This study relates to the goals of the United States Fire Administration (USFA) by reducing risk at the local level through prevention and mitigation and improving local planning and preparedness. (United States Fire Administration [USFA], 2010) The USFA challenges fire service organizations to champion the cause of taking the lead in community risk reduction. Executive Analysis of Community Risk Reduction R0274 encourages fire officers to find new ways of reducing risk in their community. Through a detailed assessment, this author has uncovered the fact that homes becoming abandoned through foreclosure provide a significant risk to the community and the fire department specifically. It is the goal of this ARP to find

9 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 9 ways to address this problem and in conjunction with the governing body, use these findings to address this problem in Pitman. Literature Review A literature review was conducted with the purpose of seeking knowledge related to the following questions: Why is the number of vacant properties increasing in the borough of Pitman, are these properties causing an increase on demand for public services, are these properties affecting the financial stability of the community, and what can be done to reduce the risk to the community posed by these properties? According to Census Bureau data, non-seasonal vacant properties have increased fifty one percent nationally from nearly 5 million in 2000 to 10 million in April 2010, with ten states seeing an increase of seventy percent or more. These increases in foreclosure rates are contributing to the increase in the number of vacancies. Furthermore, the State of New Jersey ranked fifteenth overall for the greatest increases in non-seasonal vacant units between 2000 and 2010 with an increase of a 39.5% vacancy rate. (United States Government Accountability Office [GAO], 2011) Immergluck and Smith state that foreclosures have been a problem long before the current mortgage crisis; Since at least the late 1960 s, foreclosures of single-family homes (one to four unit) have been viewed as a serious threat to neighborhood stability and community well-being. Foreclosures, particularly in lower-income neighborhoods, can lead to vacant, boardedup, or abandoned properties. These properties, in turn, contribute to physical disorder in a community, create a haven for criminal activity, discourage the formation of social capital, and lead to further disinvestment. If foreclosures lead to such negative effects,

10 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 10 then we would expect them to also lead to lower property values in the immediate vicinity, especially for residential property. (Immergluck & Smith, 2006, p. 1) Research published by the Furman Center For Real Estate & Urban Policy at the New York University School of Law shows the foreclosure crisis has created a large amount of properties being real estate owned (REO) that are owned by banks, mortgage companies, mortgage backed securities trusts and other investors throughout the country. These properties are almost always vacant and left vulnerable to thieves and vandals. Since large financial institutions own multiple properties spread over large areas, sometimes they do not make property maintenance a priority. This can cause properties to fall into a state of disrepair, leaving local governments stuck with the costs of providing added fire and police protection, code enforcement, and sometimes demolition. Additionally, lenders often put foreclosed properties back on the market immediately upon foreclosure which can impact the weak real estate market and push down neighboring home values. (Furman Center For Real Estate & Urban Policy [Furman], 2010) The foreclosure process and timelines vary in different states. Mortgage holders issue a notice to borrowers after they miss a specified number of mortgage payments. If the property owner is unable to sell the property or halt the foreclosure process by paying past due balances or negotiating a loan modification, the property will be sold at a public auction to the highest bidder. That party takes title to the property as long as the bid exceeds the unpaid balance, accrued interest and fees due on the note. If no third party places a bid higher than the reserve price, the mortgage holder becomes the property owner and the property becomes REO. (Ellen, Madar, & Weselcouch, 2013)

11 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 11 Alan Greenblatt discussed the foreclosure problem in specific cities and steps they are taking to try to get a handle on the problem. One of the most difficult tasks for local governments is researching who actually owns the foreclosed properties. Because of the convoluted nature of mortgage financing, governments often have to spend months simply trying to track down who holds the title to properties once they ve been abandoned. (Greenblatt, 2008, p. 199) Communities are going to extremes to try to locate owners and get lenders to address nuisance properties. Dayton, Ohio put up billboards with pictures and phone numbers of lending company chief executive officer s (CEO s) with the hope that neighbors frustrated with neglected properties would pressure them to address the problems. This had little positive impact and foreclosures continue to increase in the city. (Greenblatt, 2008) Studies have been done to explore links between foreclosures and increases in crime. Results of these studies vary in the effect that crime rates differ between violent crime and property crimes. According to Ellen, Lacoe, and Sharygin, foreclosures potentially change the benefits and costs of committing a crime on a blockface by affecting both the availability of suitable targets for criminal activity and the perceived presence of capable guardians against crime. (Ellen, Lacoe, & Sharygin, 2012, p. 7) Property owners in the process of being foreclosed upon may reduce the amount of money they spend on maintenance on their property since they no longer have any initiative to maintain the value. The studies have shown that property deterioration can be an indicator that local residents are not involved in the neighborhood and are less likely to intervene or report criminal activity. Properties that go through a lengthy foreclosure process tend to become vacant through abandonment and vulnerable to a range of problems including broken windows, unkept lawns, vermin, illegal occupants, drug activity, and arson. Abandoned properties are also subject to

12 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 12 theft of valuable building materials such as copper pipes and wiring or aluminum siding. (Ellen et al., 2012) The Furman Center for Real Estate and Urban Policy at the New York University School of Law has researched whether foreclosures lead to an increase in crime. Their research found that foreclosure starts have a positive and significant impact on total crime, violent crime and public order crime. Additional foreclosure starts have a seven tenth of one percent increase in total crime. This research also showed that properties that go to auction have a larger effect on crime than properties that are able to be sold prior to auction. However, the research was not able to determine if foreclosures caused a net increase in overall crime, but it does show that foreclosures lead to an increase in crime in their immediate neighborhoods. (Furman Center for Real Estate and Urban Policy [Furman Center], 2013) The National Fire Protection Association (NFPA) Analysis and Research Division has compiled data on vacant home fires. In 2006, fires in vacant homes rose eleven percent from 18,900 in 2005 to 21,000 in During this time, a larger portion of reported vacant building fires were in residential properties with fifty eight percent being in one-and-two family dwellings and five percent being in apartments or multi-family dwellings having three or more units. Forty six percent of vacant home fires between 2003 and 2006 were intentionally set as compared to just ten percent of structure fires overall. (Wolf, 2009) It is generally accepted that foreclosures can cause significant hardships for people that are directly impacted by them. Not only do they lose their home, they are then faced with difficulties in finding decent affordable housing for their family. Foreclosures severely damage credit ratings which hurt future insurance, employment and rental opportunities. In addition to the financial impacts, there are also potential psychological and emotional costs as well.

13 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 13 Immergluck and Smith (2006) have done significant research in the field of foreclosures. They have found that economic and social costs can have implications for surrounding neighborhoods and for larger communities as well. Government entities such as cities, counties, municipalities, and school districts may lose tax revenue from these abandoned homes. Costs to municipalities and neighborhoods with high concentrations of foreclosures are beginning to be studied and quantified. Research has shown that costs increase significantly for foreclosed properties that do not return to the real estate market quickly. (Immergluck & Smith, 2006) Foreclosures, particularly in lower-income neighborhoods can lead to vacant, boarded-up, or abandoned properties that in turn contribute to physical disorder in a communitydisorder that can create a haven for criminal activity, discourage the formation of social capital, and lead to more disinvestment. (Immergluck & Smith, 2006, p. 75) Moreno (1995) examined Federal Housing Administration (FHA) foreclosures and estimated average city costs of $27,000 and average neighborhood costs of $10,000 for a foreclosure. (Moreno, 1995) A study by Apgar and Duda (2005) found that direct costs to the city of Chicago involve more than a dozen agencies and two dozen specific municipal activities, which in some cases generated government costs in excess of $30,000 per property. (Apgar & Duda, 2005) According to the GAO, reducing the hazardous impact of vacant properties by boarding up and securing these properties can cost between $233 and $1400 per property in some cities. Officials in Chicago estimate that the city spent about $875,000 to board up 627 properties in Detroit estimates the cost of securing 6,000 structures since June 2010 at $1.4 million. City officials also said taxpayer dollars are spent mowing unkept lawns. These estimated costs

14 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 14 include $300 per property in Indianapolis and $25 per property for each lawn cut in the City of Detroit for the 45,000 city owned vacant properties. (GAO, 2011) Buildings that fall into a state of disrepair may require removal to ensure the safety of residents. The GAO estimates demolition costs between $4,800 and $7000 per single-family dwelling. Detroit has spent $20 million demolishing 4,000 properties since May 2009 for an average of $5,000 per property. In Baltimore City demolition costs range from $13,000 to $40,000 per property largely due to the fact that a majority of the city consists of single-family row homes which are expensive to demolish individually. Local governments are using code enforcement as the primary tool to address the maintenance of vacant and abandoned properties. Some communities have taken a proactive approach to code enforcement and implemented policies to prevent properties from falling into a state of disrepair, while others only respond to code violations when there is a complaint or an incident. When code violations go unabated, many communities issue fines in attempt to obtain code compliance and charge fees for the upkeep of vacant properties. Collecting fines and maintenance fees can be challenging and many times results in liens being assessed against the property. These fees are then collected when the properties are sold to a subsequent owner. (Berger & Tomes, 2008) Before any progress can be made, communities must identify which organizations and stakeholders will be involved in the various stages of the foreclosure process. Communities across the country are creating task forces and coalitions to help coordinate the local response to the foreclosure crisis. Kingsley, Smith & Price (2009) believe that this coordination is essential to the development and execution of effective strategies to prevent foreclosure and to stabilize communities. Their recommendations for developing a coordinated response strategy are: get

15 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 15 organized for foreclosure, strengthen the state and local policy environment, develop a local action strategy, and continuously assess progress. (Kingsley, Smith, & Price, 2009) Local and state policymakers have adopted or proposed numerous strategies to address threats posed to neighborhoods by REO properties. One of the biggest efforts is preventing the foreclosures from occurring. Programs such as the Federal Home Affordable Modification Program have been created to help keep families in their homes; which in turn reduces the number of foreclosed properties entering the housing market and to prevent negative effects on neighborhoods. (Ellen et al., 2013) In addition to foreclosure prevention programs, the Federal Government has committed funding to programs focused on REO properties that have already gone through the foreclosure process. The most well-known program is the Neighborhood Stabilization Program (NSP) which provides funds to local governments to fight neighborhood blight. As of April 2013, the Federal Government has allocated over $7 billion through three rounds of funding for projects such as acquisition of REO properties for rehabilitation and resale, rehabilitation for affordable housing, demolition of blighted properties, and the subsidizing of homebuyers who purchase REO properties to rehabilitate for owner occupancy or responsible rental management. (Ellen et al., 2013) Procedures While attending the National Fire Academy in July 2013, I was required to define a risk to the community I serve as a fire officer that would benefit from being the topic of an applied research project. During this class students learned ways to develop partnerships with the community to implement programs, initiatives, and services that prevent and/or mitigate the risk of human caused or natural disasters. After building a demographic and risk profile of the

16 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 16 Borough of Pitman, I decided that the topic I would research would be how foreclosed homes are impacting the community. To facilitate this Applied Research Project, I constructed a problem statement, a purpose statement, and research questions to be answered. For my project, a descriptive research method was utilized to complete this applied research project with the goal of identifying the impact of foreclosed homes in the Borough of Pitman. Research began in the Learning Resource Center at the National Emergency Training Center located in Emmitsburg, Maryland in between class sessions while attending the two week resident course, Executive Analysis of Community Risk Reduction, R0274. A records search was performed through the electronic card catalog which resulted in several articles of interest, multiple reference books, journals, reports, magazines, newspaper articles and a small amount of applied research projects that were completed by prior Executive Fire Officer Program students. Upon completion of the course and returning to my hometown, I continued research at the Rowan University Library in Glassboro, New Jersey and the McCowan Memorial Library located in Pitman, New Jersey. These facilities were able to provide access to multiple reference books and reference journals through the interlibrary loan program. To obtain financial data for the community I met with the tax collector for the Borough of Pitman, Mrs. Beth Walls on August 23, This meeting was held in her office located at the municipal building at 110 South Broadway, Pitman, New Jersey. She provided information on the assessed value of real property within the borough and provided the current tax rate. A meeting was scheduled with Police Chief Robert Zimmerman and Police Captain Daniel McAteer at a local restaurant on September 19, The purpose of this meeting was to discuss the impact foreclosed homes are having in regards to calls for service for the Pitman

17 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 17 Police Department. These individuals discussed the types of incidents that their officers have been handling. Data was provided in the form of operations reports and Uniform Crime Reports that report violent crimes nationwide. Data was compared to identify any specific trends or neighborhoods that were experiencing an increase in calls for service from law enforcement. These officers graciously provided the requested information and expressed interest into the outcomes of this project to utilize in their crime prevention efforts in neighborhoods plagued by vacant properties. To obtain a better understanding of the efforts currently underway in the Borough of Pitman, a meeting was requested with the municipal Code Enforcement Officer, Mr. Bruce Scott. The meeting was held in early September over lunch at a local restaurant. During this meeting Mr. Scott explained in detail the goals and intent of his position and the steps the municipality is taking to address this problem. Results The following questions were researched to address the problem statement: Research question a- Why is the number of vacant properties increasing in the Borough of Pitman? The Borough of Pitman is currently experiencing a problem with homes becoming vacant from the foreclosure process. Although the municipality was not hit as hard as other areas of the country, Pitman has had to face a growing number of properties that are becoming REO. Even more alarming is the fact that although the real estate market is stabilizing in this region, the number of vacant foreclosed properties seems to be drastically increasing this year. Throughout the country, homeowners are facing a financial crisis which has led to a drastic increase in the number of properties being foreclosed upon. The suburban Philadelphia

18 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 18 region has faced multiple events that have had a direct impact on the financial stability of many of the residents. Over the last four years, Gloucester County, New Jersey has lost some of its largest employers including Sony Records, Sunoco Oil, a major United States Postal Service processing facility, as well as numerous small manufacturing companies. With the loss of these jobs the unemployment rate soared, at times exceeding ten percent. Many residents of Pitman were directly impacted by these closures, especially with the loss of Sony Records, which at one time employed close to 3,000 people and is located here in town. Nationwide, the loss of manufacturing jobs has been directly related to the increased foreclosures since many of these individuals are unable to find work, and when they do, it seldom pays wages comparable to previous employment. Prior to the housing crisis, property values in town were flourishing. Strong financial growth and rising property values led to widespread speculation. Investors were buying homes at a proliferating rate and reselling them within days at a hefty profit. Homeowners were able to obtain mortgages far in excess of true property values. One section of Pitman that has been significantly impacted by abandoned homes is the Grove. This area is comprised of small singlefamily homes in a densely populated historical area dating back to the 1800 s when the Methodist Church Summer Camp Meeting used it as a summer retreat before the community was officially established. Developable land in this neighborhood is next to impossible to find and new construction is very rare. In September 2007, a new single-family dwelling was constructed on a lot that became available after the demolition of a home that was non-repairable. This property now consists of a 1,200 square foot home constructed on a 5,500 square foot lot which sold for $229,000 after completion. Currently this property is assessed at $89,600 and has been sitting vacant from foreclosure for approximately two years.

19 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 19 Many of these properties were purchased for investment purposes or as second homes. As the housing market crashed, the values of these properties decreased drastically. Fewer homeowners could escape foreclosure by refinancing or selling homes and property owners who were in over their heads are walking away leaving the banks to deal with the abandoned properties. As property values decrease, tax revenues decrease. Government entities rely on these revenues to provide essential services to their residents. In addition to the loss of gainful employment opportunities, homeowners are facing tax and utility increases from local governments, county governments and school districts. Over the last five years, taxes in town have increased close to $1000 annually to cover necessary services. Adding these increases to inflated mortgages is just compounding the problems many homeowners are currently facing. Research question b- Are these properties causing an increase on demand for public services? Research shows that abandoned properties provide new challenges for communities in regards to public safety and property maintenance. It is no secret that vacant properties attract vandalism and crime, especially in urban environments. Properties that become subjected to vandalism pose a risk to the community as a whole. Unsecured homes attract children that are curious to see what is inside and illegal occupants taking up shelter in these homes. Public officials have a civic duty to ensure for the safety of all residents and at times must take steps necessary to secure vacant properties from trespassers, and to correct dangerous conditions to prevent hazards to the neighborhood. During the meeting with the Pitman Police Department administration, it was determined that the Borough of Pitman has been fortunate in that it has not been experiencing a significant

20 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 20 increase in violent crimes related to vacant properties. However, they did state that the department has received an increase in the calls for service in regards to property crimes such as vandalism, trespassing and possible drug activities. The community has a pro-active police department that works very hard to serve the public. Through initiatives such as community policing and targeted patrols, much of the crime related to these properties has been reduced or prevented. Being a small community with its own police force has its advantages. In addition to routine patrol duties, each officer is assigned a section of the community that they are responsible to ensure targeted enforcement for problems such as abandoned vehicles, loitering, blight, etc. As these problems are found, they are referred to the code enforcement office for handling through municipal court or through civil processes. In an effort to improve property maintenance efforts, the municipality expanded the roles and responsibilities of the code enforcement office in early Mr. Scott was hired with a primary mission of identifying and addressing problems associated with abandoned homes. This position previously existed but was merged with another job title in an effort to reduce costs in 2008 and its primary focus was redefined. Mr. Scott stated that he has done his best to compile a list of vacant properties and has been issuing citations to the owners of these in an effort to gain code compliance. Currently, he stated that his biggest issue is locating the responsible party and a person to handle REO property complaints. Large bank corporations own many of the vacant homes and have nothing more than a financial interest in the community. When violation notices are issued, mortgagers legal departments overwhelm towns with documents which require the municipal solicitor to get involved. This not only delays code compliance, it also increases direct costs to the municipality for legal representation. Properties not brought into compliance go into the court system at either

21 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 21 the local or county level. If found guilty by a court of law, penalties may be assessed, and the judge can order the municipality to abate the violations, applying a lien for the actual costs incurred. This lien is not collected until the property is sold and many of the legal expenses are not recoverable. In addition to police and code enforcement personnel, the fire department deals with abandoned homes as well. A review of incident reports for the Pitman Fire Department showed a small increase in call volume at known vacant properties. Many of these calls were for hazards such as downed wires, and service related assignments. However, records do show two arson fires in vacant homes over the last four years. Vacant properties that pose an immediate hazard to health and safety are referred to the Pitman Bureau of Fire Safety which serves as the local enforcing agency for the New Jersey Uniform Fire Code. Many of the issues this department handles are complaints in regards to illegal occupants, unsecured properties, and electrical hazards from wiring being removed by vandals. Research question c- Are these properties affecting the financial stability of the community? Over the last three years, the Borough of Pitman has begun to face the reality of the housing crisis and foreclosed homes impact on the community. Pitman is a primarily residential community consisting of 2907 owner occupied residential properties and 1016 non-owner occupied residential properties. As homeowners face foreclosure, they are forced to leave their homes which then become REO and unoccupied. It is believed that foreclosures negatively impact property values of surrounding homes. Within a small community of only 2.3 square miles, this has the potential to affect most, if not all of the property owners in Pitman. Many of these properties fall into a state of disrepair due to

22 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 22 the banks not maintaining or improving them. As the conditions of these properties decrease, their values begin to fall. Many times foreclosed properties are being sold at significantly discounted prices as compared to similar properties. Due to the decrease in sale prices and large amount of foreclosed homes flooding the real estate market, overall sale prices in the community begin to fall. Residents looking to sell properties will have difficulty getting their homes to appraise which will reduce sale prices and possibly force more property owners into short sales or the foreclosure process. In an effort to reduce costs and control property tax increases, municipalities in New Jersey are entering into shared service agreements for municipal services. The Borough of Pitman has entered into a joint tax assessment program with the County of Gloucester that consists of all of the municipalities within the county. As part of this project, the town has recently undergone a complete re-assessment of taxable values. The intent is to equally distribute the tax burden on all property owners based upon assessed property value. During this process it was noted that the borough had a large amount of vacant and abandoned homes. Homes that were maintained in livable condition received appraisals that were comparable with similar homes in the neighborhood. Properties that have fallen into a state of disrepair received lower assessments based upon their perceived value. Upon the completion of the re-assessment process new tax bills were issued based upon the new assessments. The borough operates on a budget that requires revenues to be raised by taxation to provide municipal services. This revenue is raised from property taxes based on the assessed value of real property. With the decreased assessments of abandoned homes, more of this tax revenue is placed on property owners of homes that are well maintained. In response to these increased tax bills, the Borough of Pitman has received a significant increase in the number

23 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 23 of appeals filed to the Board of Taxation. Outcomes of these appeals will determine how much the municipality is liable for and must return in the form of tax credits to successful appellants next year. In addition to changes in property assessments and tax rates, the Borough of Pitman incurs other costs related to foreclosed properties that remain unoccupied or become abandoned. As problems occur or complaints are received, borough officials have an obligation to follow-up on the issues to protect the safety and welfare of the residents of the community. All of these tasks have associated costs. As with many towns, the main costs are associated with personnel. Salaries, benefits, and pension costs account for the majority of the local municipal budget. In 2013, the Borough of Pitman expanded the scope and role of the code enforcement office to address issues related to abandoned properties. This required an expansion of work hours and an increase in salary to account for the extra work load. With the additional work comes the need for more administrative support assisting with documentation and correspondence, as well as incurred expenses for legal advice and certified mailings. Many of these costs are nonreimbursable through enforcement actions and must be incurred by the governing body and passed on to property owners through local property taxes. Furthermore, necessary actions taken by local governments to ensure the property is safe and secure can have significant costs. The GAO estimated that it can cost between $233 and $1400 per property for boarding up and securing in certain cities, fortunately Pitman has not had to board up many buildings so they have not had to spend this type of money as of yet. Although many costs including mowing, securing, and demolition are reimbursable, they require legal involvement to ensure liens are properly recorded on the deed. Even with the liens being applied, many of these expenses will not be recovered until the property is sold which could take

24 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 24 years. In the meantime the municipality must carry the debt through its municipal budget process which will continue to have an impact on the local tax rate. Research question d- What can be done to reduce the risk to the community posed by these properties? Communities across the country are looking for answers of how to address the escalating number of foreclosed homes. Numerous programs have been implemented to help homeowners prevent foreclosure and to assist communities being affected by this crisis. To combat this problem, local governments need to facilitate a plan and work with other organizations to be successful. This plan needs to include stakeholders from groups within the community including government officials, civic organizations operating within town, financial institutions, attorneys, business leaders, and church groups. The primary role of these groups is to help prevent foreclosure and to create policies and procedures for how government officials will respond to foreclosed homes. This group can provide input on revising local laws, regulations, and policies to be more effective in dealing with vacant properties. Before property maintenance efforts can commence, minimum standards must be defined. The governing body that is responsible for this task should adopt by ordinance a property maintenance code and make this available for property owners, mortgage companies, and property maintenance personnel. These regulations must be fair and include an appeal process for property owners served with violation notices. To ensure proactive enforcement, municipalities and cities must dedicate funds to ensure code compliance. Personnel are necessary to perform inspections and to locate property owners. When these properties require securing, the governing body must be willing to commit to the costs required to secure and cleanup the property before someone gets injured.

25 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 25 Much of the research agreed that the most effective way to address foreclosures is to prevent them from occurring. People need homes to dwell in and raise their families. Foreclosures severely limit housing choices reducing people s chances of owning a home in the future. Programs designed to keep people in their homes assist not only property owners, but cities and towns as well, by reducing the amount of vacant homes in communities. The Federal Home Affordable Modification Program and the Home Affordable Refinance Program are examples of federal programs designed to keep people in their homes and reduce the number of foreclosed properties. Local, county, and state elected officials need to continue to solicit federal lawmakers to provide increased funding to these programs to solve this crisis. Other programs such as the Neighborhood Stabilization Program and Community Development Block Grant in New Jersey provide funds to local and county governments to help fight neighborhood blight. Local governments need to continue to obtain funding from these programs and commit to helping people find ways to remain in their homes. When homes become vacant through foreclosure, local government officials need to be proactive in preventing the property from becoming a nuisance. Through proactive code efforts, code enforcement personnel can make contact with responsible parties of REO properties and advise them of local laws and regulations regarding unoccupied homes. Progressive enforcement personnel will be able to pressure banks and other mortgage holders to ensure their vacant properties are secured and that arrangements are made for ongoing maintenance. Some cities are taking additional steps to address this problem including requiring the registration of vacant properties with annual registration fees and levying hefty liens for property maintenance costs. More progressive communities are working with banks and mortgage holders in an attempt to get the properties back on the real estate market and re-occupied quickly. This

26 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 26 includes offering tax incentives for property improvements and stream lining the sale process for foreclosed homes in the community. In some areas of the country, governments are acquiring title to vacant homes through eminent domain or bulk purchases from mortgage holders. Properties obtained through this process become the property of the town or city which has to decide which course of action they wish to take to get these properties back on the market for resale or rental. Discussion The purpose of this applied research project was to study the impact of foreclosed homes in the Borough of Pitman. The Borough of Pitman is a small town that is facing similar problems to its larger counterparts throughout the country related to the current housing crisis. Municipal officials in the Borough of Pitman estimate that the number of vacant and abandoned properties is around 200 to 250. That is a significant number when compared to a housing stock consisting of 3,923 housing units in the 2.3 square mile municipality. These numbers do not take into consideration homes that are currently unoccupied while listed for sale by the owner, nor does it include vacant commercial properties or spaces. All of the literature reviewed agreed that communities throughout the United States of America are facing an economic down turn in regards to property values. It appears that the Borough of Pitman is starting to be effected by the rising number of properties that have become vacant through foreclosure. Due to the demographic makeup of the community, the borough is not facing the blocks of abandoned homes, but pockets of properties spread throughout the entire community. As expected, as the number of vacant properties increases, the costs to the community as a whole begin to increase.

27 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 27 According to the GAO report (2011), the State of New Jersey has had close to a 39.5% increase in the number of vacant homes between 2000 and This research showed that in the same time period the number of vacant properties increased almost 25% in the Borough of Pitman. Unoccupied homes themselves do not cause a problem to neighborhoods; it is the associated problems that come with the vacant and abandoned properties that affect the overall communities well-being. Immergluck and Smith (2006) are correct in their findings; that as this epidemic continues, property values in the immediate vicinity begin to decrease, especially in residential properties, of which mainly comprises the Borough of Pitman. Many Americans are facing difficulties with satisfying financial obligations in the current economic downturn. As debt mounts, homeowners are having difficulty making their mortgage payments. Ellen, Madar & Weselcouch (2013) discussed the processes that financial institutions take when property owners are unable to satisfy mortgage terms. The Furman Center For Real Estate & Urban Policy at New York University School of Law (2010) discusses in detail how many properties that become REO through foreclosure go on to become abandoned and falls into varying states of disrepair. Through conversation with local government staff, this appears to be a large part of the problem the Borough of Pitman is currently facing. Once these properties become REO, it becomes difficult to locate the actual owners and responsible parties to address problems when they do occur. Greenblatt (2008) discusses examples of the extreme tactics that major cities have been using to get lenders to address problems that these nuisance properties are causing to their communities. Although the author may not agree with posting a billboard with the CEO s picture and personal contact information listed, he does agree with using today s technology to your advantage in locating and pressuring these financial institutions to maintain their properties.

28 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 28 During the course of this research, it was noted that neighbors to an abandoned property in town were able to get media coverage of the blighted home and atrocious conditions which resulted in an immediate response from the bank which owned the property. Within twenty four hours of broadcast, crews were at the property cleaning and securing the property from further problems. As properties become vacant they can become targets of vandalism and other criminal activities. Ellen, Lacoe, amd Sharygin (2012) discussed how large numbers of vacant properties can lead to an increase in violent and property crimes, especially in neighborhoods with large numbers of abandoned properties. Information provided by Chief Zimmerman and Captain McAteer stated that the Pitman Police Department has not seen any significant increase in violent crimes, however has seen an increase in the number of calls for service related to property crimes such as vandalism, trespassing, thefts, and reports of possible drug activities. Based upon the information provided by law enforcement, the author agrees that abandoned properties do lead to an increase in crime, however believes that Pitman has been fortunate to not experience significant increase in violent crimes most likely due primarily to proactive law enforcement efforts. Data provided by Wolf (2009) showed a marked increase in the number of fires in vacant homes. In addition to the increase in the number of fires, there was a significant increase in the amount of intentionally set fires in residential properties. Reviewing data for the Pitman Fire Department showed responses to known vacant properties and reports of intentionally set fires in some of them. The author was unable to identify any trends on previous fire data in vacant buildings in the Borough of Pitman since that specific use was not identified in previous record keeping. Information gained through research leads the author to agree that vacant and

29 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 29 abandoned properties increase the risk of fire; however through proactive code enforcement and police efforts Pitman has been successful in combatting the arson problem as of this time. As properties become abandoned through the foreclosure process, they bring associated costs to the cities and towns they are located in. Moreno (1995) and Apgar and Duda (2005) have studied the costs cities incur as a result of foreclosures. They estimate the average cost to a city was between $10,000 and $30,000 per property for a foreclosure. These estimates were based on costs incurred for legal processing and servicing, inspections, boarding up and other property maintenance issues. Immergluck and Smith (2006) stated that these costs increase significantly when these properties are not quickly returned to the real estate market. In addition, the GAO (2011) estimates the costs of reducing the hazardous impact of abandoned properties at between $233 and $1400 per property each time they need to be secured. Discussion with Mr. Scott determined that the Borough of Pitman has been fortunate in that it has not had to spend significant amounts of taxpayer dollars to secure abandoned properties at this time. However, he did state that as properties fall into states of disrepair, the borough may have to incur direct expenses in the future to protect the safety of the community. The borough has had to expand the role and duties of the code enforcement office in recent years and with all public services, this comes with a price tag. Although not drastic, this expansion has increased the costs to the community to deal with this problem. This includes salaries, legal representation, certified mailings and other associated expenses. The author agrees with the literature in regards to community costs and agrees that as vacant homes fall into disrepair, the borough may have to incur expenses to ensure the safety of the community. As Berger and Tomes (2008) discussed, local governments can levy penalties against property owners for failing to maintain properties in compliance with minimum standards. Local

30 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 30 officials must follow specific rules to ensure that these penalties are properly assessed and, if necessary, take necessary efforts to make the property safe and place liens against the property owners to recover monies spent. Kingsley, Smith and Price (2009) discuss the importance of coordination of efforts by government officials to ensure code compliance, local policy adoption, and continually assessing the effectiveness of enforcement efforts. Many of the costs incurred by local governments such as salaries and legal expenses are not able to be recovered, however, direct expenses such as property maintenance, boarding up and demolition can be. The author agrees that it is important that any tax dollars expended on vacant properties be recovered and that the most effective means of code enforcement is used to maintain abandoned properties. In response to the housing crisis, the federal government has created programs aimed at keeping people in their homes and reducing the number of foreclosed properties in the housing market. Ellen, Madar and Sharygin (2013) discussed programs such as the Federal Home Affordable Modification Program and the Neighborhood Stabilization Program. These programs are essential public policy and were designed to address the current housing crisis. Programs such as these are dependent upon federal funding and have had varying successes in different communities around the country. Some communities have been successful to get blighted properties renovated and placed back in the market as affordable housing, while others have used funds to demolish large amounts of blighted properties in an attempt to rid neighborhoods of crime ridden properties. The author agrees with the information provided and supports these programs as a viable opportunity to get this crisis under control. Recommendations This study evaluates the impact of the growing number of residential properties that are becoming abandoned through foreclosure in the Borough of Pitman. Specifically, the study

31 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 31 stresses the importance of proactive code enforcement on vacant properties to protect the health, safety and welfare of the community as a whole. Currently, local governments are facing the ever growing number of properties becoming vacant through foreclosure. As this number increases, the amount of properties falling into disrepair will increase as well. Until the economy improves and houses become a sought after commodity, many of these vacant homes will continue to remain unoccupied and become blighted. Local governments have the responsibility and legal authority to address these items to protect the overall well-being of the community. Cities and towns throughout the country are facing this dilemma. Although demographics vary between communities, many of the properties are owned by similar financial institutions and through collaborative efforts by local governments, many of these issues could be addressed. The author s recommendations are as follows: Perform a vacant property assessment and create a database for the Borough of Pitman. This should include property address, owner of record, property condition and emergent needs. Locating the owner of record can prove difficult at times; however this will be essential for enforcement actions. If multiple properties are owned by the same financial institution, it may be possible to get multiple remediation efforts started at the same time. Assess local regulations for property maintenance. Many communities have outdated or absent property maintenance standards. Without modern regulations, enforcement can be extremely difficult. Consideration should be given to model codes which are similar to those in effect in communities throughout the region to help ensure fairness and uniformity for companies responsible for the maintenance of REO properties. Regulations should be based on minimum

32 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 32 requirements for the health, safety and welfare of the community and must be adopted by an enabling ordinance. Establish regulations for vacant property registrations with annual permit fees. Requiring property owners to maintain registration ensures contact information is available for code enforcement personnel to be able to maintain a line of communication with responsible parties. Establishment of annual registration fees will entice owners to get properties back on the real estate market with a goal to reoccupy. Fees generated can be used to help defray costs of enforcement by the municipality. Perform proactive enforcement activities. When properties become vacant through foreclosure, efforts should be taken early in an effort to prevent them from becoming abandoned. Working with responsible parties to get properties secured and minimum maintenance standards established can be beneficial. Waiting until these properties fall into a state of disrepair can lead to other long term problems. Take efforts to secure abandoned properties. Unsecured properties lead to property crimes. Local governments should take efforts to ensure that buildings remain secured at all times. Open doors and broken windows entice unwanted persons to enter buildings. Having easy access for these individuals leads to vandalism, squatting, and criminal activities. Take efforts to secure all abandoned properties as soon as legally allowed. Demolish buildings that fall into a state of disrepair and pose an imminent hazard to the public. Many of these buildings are beyond repair and title holders will not

33 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 33 take action to address the hazards. These properties put neighborhoods at risk of hazards such as collapse and fire. Collect penalties and liens through tax sales. Municipalities are authorized to sell delinquent taxes and collect other fees due to the town. Liens assessed for property maintenance issues are classified as special assessments and can be sold through auction at a tax sale if not satisfied. Through tax sales, costs incurred for the property maintenance issues can be recovered or the municipality can begin the process to claim title to the property. Obtaining ownership through tax sale allows the town to address the problems or sell the property. Utilize state and federal programs to address abandoned properties. It is proven that abandoned properties affect the value of neighboring homes and the community as a whole. By using neighborhood preservation funds to purchase abandoned homes will allow for them to be included in redevelopment plans. There are numerous avenues the town can take once they own the property. Research the feasibility of providing incentives to owners and investors that rehabilitate abandoned properties. The ultimate goal of the town is to have all properties occupied and maintained to the minimum standards of occupancy. Providing financial incentives such as tax abatements may entice people to invest in these properties and rehabilitate them. This will lead to long term sustainability and community growth. Following these recommendations should help the Borough of Pitman address some of the problems they are having with abandoned homes. This problem is spread throughout the nation and many communities are asking the same questions; how do we address this problem?

34 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 34 Through cooperative efforts with surrounding communities I am convinced that communities can experience positive results. Addressing this problem before it becomes an epidemic is absolutely necessary to the sustained health and prosperity of communities. With limited improvements in the housing market, abandoned homes will continue to dot the landscape of our communities. Through strategic planning and proactive code enforcement efforts, the municipality should be able to get the upper hand on this crisis and reduce the risk to the community. The author strongly recommends communicating with communities outside of Gloucester County and New Jersey about this topic. Other towns experiences can be of great assistance to the Borough of Pitman with addressing these issues.

35 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 35 References Apgar, W., & Duda, M. (2005). Collateral damage: The municipal impact of today s mortgage foreclosure boom. Retrieved from Homeownership Preservation Foundation website: Duda_Study_Short_Version.pdf Austin, K., & Pierson, R. (2012). Pitman Fire Department year end report Pitman, NJ: Pitman Fire Department. Berger, A., & Tomes, W. (2008). A downward spiral: The effects of plummeting property values on neighborhoods. Retrieved from University of south Carolina, Institute for Public Safety and Policy Research: 20Property%20Values.pdf Ellen, I. G., Lacoe, J., & Sharygin, C. A. (2012). Do foreclosures cause crime. Washington, DC: The Urban Institute. Ellen, I. G., Madar, J., & Weselcouch, M. (2013). The foreclosure crisis and community development: Exploring REO dynamics in hard-hit neighborhoods. Retrieved from Furman Center for Real Estate and Urban Policy and Wagner School, New York University: Furman Center for Real Estate & Urban Policy. (2010). Foreclosed properties in NYC: A look at the last 15 years. Retrieved from es.pdf

36 IMPACT OF FORECLOSED HOMES IN BOROUGH OF PITMAN 36 Furman Center for Real Estate and Urban Policy. (2013). Do foreclosures cause crime. Retrieved from Greenblatt, A. (2008, April). Two faces of foreclosure. Governing, Immergluck, D., & Smith, G. (2006). The external costs of foreclosure: The impact of singlefamily mortgage foreclosures on property values. Housing Policy Debate, Kingsley, G. T., Smith, R., & Price, D. (2009). The impact of foreclosures on families and communities. Retrieved from The Urban Institute: Moreno, A. (1995). The cost-effectiveness of mortgage foreclosure prevention. Retrieved from Family Housing Fund website: Schilling, J. (2004, May). Revitalizing vacant properties and substandard buildings. Public Management, 86(4), United States Fire Administration. (2010). America s fire and emergency services leader: Strategic plan fiscal years [Strategic plan]. Retrieved from United States Government Accountability Office. (2011). Vacant properties: Growing number increases communities costs and challenges (GAO-12-34). Washington, DC: Government Printing Office. Wilson, R. E., & Paulsen, D. J. (2008, October). Foreclosures and crime: A geographical perspective. Geography & Public Safety, 1(3), 1-2. Wolf, A. (2009, September/October). Fear foreclosure frustration fire. NFPA Journal,