THE BANKS ARE BACK – OUR NEIGHBORHOODS ARE NOT Discrimination in the Maintenance and Marketing of REO Properties
As the foreclosure crisis continues to affect 1 in 69 households across the United States, or roughly 2.7 million families in 2011, banks are repossessing an unprecedented number of properties.1 As a result, a related crisis has emerged — one in which vacant and poorly maintained bank-owned properties mar once vibrant, well-maintained neighborhoods. But this problem has not affected all neighborhoods equally. This report documents an alarming pattern by many of the banks, lenders, investors and other entities that manage Real Estate Owned (REO) assets. They have engaged in substandard maintenance of REO properties in communities of color, while maintaining REO properties in predominantly white communities in a superior manner.
Proper REO maintenance is a key factor in both the marketability and value of a home as well as the sustainability and viability of communities. Poor maintenance practices can result in a property remaining vacant for longer periods of time. Poor maintenance also increases the likelihood that a property will be purchased by an investor at a discounted price, rather than by an owner-occupant, because of the cost to rehabilitate the home. Thus, the inferior way in which banks2 maintain and market their REO properties in communities of color actually changes the character of and serves to degrade the quality of life in these neighborhoods.
The National Fair Housing Alliance (NFHA) conducted an examination of REO maintenance and marketing practices of several major lenders and investors in targeted neighborhoods in nine metropolitan areas. NFHA and its partners evaluated more than 1,000 REO properties in neighborhoods with predominantly Latino and African-American residents, as well as those with a majority of White residents. The evaluations took into account 39 different aspects of the maintenance and marketing of each property, including curb appeal, structure, signage, indications of water damage, and condition of paint, siding and gutters. NFHA’s partners in this investigation included the Miami Valley Fair Housing Center in Dayton, Ohio; Housing Opportunities Project for Excellence (HOPE) working in Miami-Dade and Broward Counties, Florida; Metro Fair Housing of Atlanta in Atlanta, Georgia; and North Texas Fair Housing Center in Dallas, Texas, serving the greater Dallas/Fort Worth area.
The findings of the investigation revealed extremely troubling disparities in maintenance and marketing practices. REO homes in White neighborhoods were cared for in a substantially better manner than those in communities of color. While REO properties in predominantly White neighborhoods were more likely to have neatly manicured lawns, securely locked doors, and attractive “for sale” signs out front, homes in communities of color were more likely to have overgrown yards littered with trash, unsecured doors, broken windows, and indications of marketing as a distressed sale. REO properties in communities of color generally appeared vacant, abandoned, blighted and unappealing to real estate agents who might market the unit to homebuyers. On the other hand, REOs in White communities generally appeared inhabited, well-maintained and attractive to real estate agents and homebuyers.
The findings included significant differences, such as:
• REOs in communities of color were 42 percent more likely to have more than 15 maintenance problems than properties in White communities.
• Trash and debris were 34 percent more likely to be found on REO properties located in communities of color than on REO properties in White neighborhoods.
• REO properties in communities of color were 82 percent more likely than REO properties in White communities to have broken or boarded windows.
• REO properties in predominantly White neighborhoods were 33 percent more likely to be marketed with a professional “For Sale” sign than their counterparts in African-American or Latino communities.
• In the Washington, DC, metropolitan area nearly 60 percent of REO homes in African-American neighborhoods had broken or boarded windows, while the same was true for only 39 percent of REO properties in predominantly White areas.
• In the Baltimore, MD, metropolitan area, 43 percent of REO properties in African-American neighborhoods had boarded up windows, while this only occurred in 28 percent of homes evaluated in predominantly White neighborhoods.
• In Philadelphia, PA, more than 10 distinct maintenance or marketing problems were documented in 41 percent of homes in African-American communities, while none of the properties in White communities had more than 10 maintenance or marketing problems.
• In Phoenix, AZ, 73 percent of REO properties evaluated in Latino neighborhoods were missing a “For Sale” sign, while only 31 percent of homes in predominantly White neighborhoods were missing a “For Sale” sign.
• In Oakland, Richmond, and Concord, CA, REOs in the African-American communities were 3.45 times more likely to be missing a “For Sale” sign than their white counterparts.
• In Dayton, OH, 60 percent of homes in African-American communities had broken or unsecured doors, while only 18 percent of homes in white communities had this problem.
• In Miami, FL, 46 percent of REO homes in African-American communities had boarded or broken windows while the same was true for only 16 percent of REO properties in White communities.
• In Dallas, TX, 60 percent of REOs in African-American neighborhoods, 68 percent of REOs in Latino neighborhoods, and 73 percent of REOs in communities with a majority of residents of color had substantial amounts of trash on their properties, while only 37 percent of communities in White areas had the same problem.
•In Atlanta, GA, 32 percent of REOs in African-American communities had more than 10 deficits, while not a single property in a White area was subject to such poor maintenance.
The federal Fair Housing Act requires banks, investors, servicers or any other responsible party to maintain and market properties that are for sale or rent without regard to the race or national origin of the residents of a neighborhood. It is illegal to treat a neighborhood differently because of the race or national origin of the residents. Moreover, these laws obligate banks, investors and servicers to monitor the actions of vendors engaged to perform housing-related transactions to ensure that those third party entities are complying with fair housing laws and regulations.
Banks, federal regulators, local communities and law enforcement must work together to ensure that these sorts of discriminatory practices are stopped as the foreclosure crisis continues in the coming years. Banks must completely restructure their maintenance and marketing models to ensure equal treatment of REO properties in all neighborhoods so that all communities have a fair opportunity to recover and prosper.
Full report below…