City Pressured to Ease Fines on Bank Owned Foreclosure
A California city's measure requiring lenders to maintain bank owned foreclosure is receiving flak from critics. The city is being pressured to lower fines and penalties and give lending institutions more time to repair and improve foreclosed properties.
The city of Chula Vista in California had imposed an ordinance that became a national model for mandating that lending institutions maintain abandoned and vacant bank owned foreclosure to prevent them from becoming blights to neighborhoods.
But critics are taking up cudgels against what they claim are the ordinance’s stiff fines and penalties. Already, the city is being pressured to lower the measure’s exorbitant fines and stiff penalties and to give lenders ample time to improve vacant bank owned foreclosure.
In 2007, Chula Vista enacted measures that authorized it to put out citations for abandoned and vacant foreclosed homes after lending institutions filed default notices. The filing of notices of default signals the start of foreclosure proceedings.
So far, the city has imposed fines totaling over $1.3 million. And it has already collected nearly $752,000 after two years of implementing the anti-blight ordinance. The total amount raised by the city from registration fees for abandoned and vacant bank owned foreclosure have already reached around $183,000.
Critics pointed out that Chula Vista’s ordinance has an unintended consequence of delaying the recovery of the city’s real estate market. They claimed that banks would hesitate to do business in the area because of large fines and stiff penalties.
Some lenders were shocked to learn that fines can reach as much as $10,000. City officials explained that it is necessary to impose large penalties in order to force lenders to change their behaviors on maintaining foreclosed properties on their inventory.
The city has used the ordinance to place the burden of maintaining foreclosed houses on lenders. Typically, cities issue citations after lenders have officially taken over abandoned and foreclosed homes. This process may take months and for the meantime, local governments are forced to handle the maintenance of foreclosed properties and seek for reimbursement later.
Chula Vista’s ordinance requires loan servicers and banks to inspect foreclosed houses to determine if they are occupied or not. If the property is vacant, lenders are required to register the home with the city, secure and maintain it.
The ordinance, developed by Chula Vista code enforcement manager Doug Leeper, puts the responsibility of maintaining bank owned foreclosure on lenders even if the ownership of properties have not been officially turned over to them through repossession.
By Cassiano Travareli