How To Fix South Jersey's 'Toxic' Foreclosure Program

Options presented for what legislators, nonprofits and private sector could do to ‘prevent further damage to our neighborhoods and communities’.

The state’s foreclosure crisis has hit South Jersey especially hard, impacting entire communities through lower home values, higher property taxes, a lack of homes available for first-time buyers and working-class families, and affecting the region’s economy.

A report released Monday by the Senator Walter Rand Institute for Public Affairs at Rutgers University-Camden suggests a combination of strategies the Legislature, nonprofits and the private sector could use “to prevent further damage to our neighborhoods and communities” from what it calls a longstanding problem. These range from the innovative — creating a revolving loan fund for South Jersey housing to provide funds for buying bank-owned homes and turning them into affordable housing — to a call for the state to address the thorny problem of high property taxes.

“Through such efforts, these ‘toxic liabilities’ can become community assets by repurposing them as residential properties and fulfilling a demand for affordable workforce housing,” says Darren Spielman, executive director of the Rand institute, which produced the report in partnership with Land Dimensions, a Glassboro engineering firm, and the Financial Wellness Institute, a Deptford-based nonprofit financial education organization.

Toxic liabilities

The report, titled “An Investigation of the Foreclosure Problem in South Jersey and Proposed Strategies for Turning Toxic Liabilities into Community Assets,” indicates that the large numbers of foreclosures in the southern part of the state are just part of a multi-faceted problem that includes and affects a host of other issues, from low wages to a lagging recovery from the recent recession.

“Since the Great Recession of 2008, an unprecedented number of distressed foreclosed properties continue to weigh down the South Jersey region, far exceeding rates across the country,” the report states. “These residential properties have a negative impact on neighborhoods, undermining quality of life and diminishing the value of neighboring properties. While some vacant, abandoned and REO properties are well maintained, many are not, exacerbating housing issues in communities across the region.”

More than one-third of state’s distressed properties

Six of the eight South Jersey counties had among the highest foreclosure rates in the state as of May 2018, led by Atlantic County, where one of every 395 homes was in foreclosure, according to the report. The rates in Burlington, Camden, Cumberland, Gloucester and Salem counties were also higher than the state average of one in 639 homes. By comparison, the national rate was roughly three times better, with just one of every 1,835 homes in foreclosure. And the same six counties are home to close to 13,000 distressed properties, or more than a third of those in the state.

The report places much of the blame for the large number of foreclosures on the length of time the process takes in the state. It looked at 78 properties and found that it took on average 5.3 years for these to move through the foreclosure process, with one taking as long as nine years. Many of these date to the start of the recession, when the collapse in the housing market created a huge caseload. Reforming this process to speed it up and minimize the amount of time a home sits vacant is one of the report’s recommendations.

In New Jersey, foreclosure is a judicial process that is meant to balance the rights of property owners with those of the banks that hold mortgages and servicers that process the payments. The laws and rules governing it include specific timeframes. When the crisis hit, New Jersey instituted a number of practices to try to keep the process moving while also ensuring fairness.

Pete McAleer, spokesman for the Administrative Office of the Courts, said the court system has reduced the amount of time a case is before a judge to less than six months and that delays in the process can occur when a lender does not file for a legal complaint against a delinquent homeowner and the time it takes to schedule and conduct a sheriff’s sale.

Problems multiply when homes left vacant

“The average timeframe for the court’s involvement in the foreclosure process, from complaint to judgment, has decreased from a peak of 1,360 days to 160 days for the most recent 2017-2018 court year,” McAleer said. “Pending foreclosure cases in New Jersey have been reduced to the lowest point since before the collapse of the housing market triggered a crisis that peaked in 2009.”

He added that only contested cases, about 20 percent of all, are reviewed by a judge. The Superior Court Clerk’s Office in Trenton processes all uncontested foreclosures administratively and “there is no bottleneck from that process,” McAleer said.

A special judicial committee on foreclosures acknowledged the myriad problems caused by homes left vacant for long periods and suggested some changes to speed the process, including the setting of deadlines for filings and actions, in its own report issued last month.

“The longer a house is in foreclosure, the more likely the house is to lose value and adversely affect the value of neighboring properties as well as the surrounding community,” the Rand report stated, noting that of the 78 homes analyzed for its report, the average home value dropped by 51 percent, the property tax increased by 19 percent and the community’s tax rate increased by 9 percent.

The report found that entry-level homebuyers and middle-income families are unable to compete with investors looking to buy foreclosed homes owned by lenders and that hurts the region’s housing market.

Lower incomes, higher rates of poverty

These issues are part of a broader housing problem affecting South Jersey, where the median household income is lower and the poverty rate is higher than the state as a whole. Households also face large housing burdens, with more than 57 percent of renters and 42 percent of homeowners in the six high-foreclosure counties paying more than 30 percent of income on rent.

Overall, the report states, “Historically, home building has been an economic driver in South Jersey. The home building industry in New Jersey has not recovered from the collapse of the real estate market.”

Theresa DiVietro, a founding principal of Land Dimensions, said much of the South Jersey economy was driven by new home construction before the recession, as new homes fed growth in the commercial and retail sectors, and the collapse of the housing market created a cycle that has hurt individuals, businesses and the economy as a whole.

“Without a strong economic base, and no need to build new housing to the extent that we experienced for almost 40 years, one of our most previous thriving industries is lackluster, and if housing is not helping to drive our South Jersey economy, and people do not have the discretionary dollars to spend on local businesses, then we are not recovering as other markets have recovered,” she said. “Job creation is now as a result of eds and meds, as well as tourism and the arts. And our workforce that is comprised of school teachers, firefighters, bank tellers, nurses, bus drivers, retail clerks and municipal employees, do not have an easy time of keeping up with the high cost of living in a very expensive state.”

Addressing the high costs in the state, most notably high property taxes, is among 10 recommendations in the report. Spielman noted that the state relies on local taxes more than any other in the nation and that more than half the average property-tax bill pays for education. The report said the reluctance of municipalities to merge or share services also hurts taxpayers.

Find a way to ‘acquire and rehabilitate’

“Issues pertaining to housing affordability, low homeownership rates and the strain these issues have on the local economy are not going away without intentional intervention,” the report states. “New Jersey has battled these issues for decades. The public, nonprofit and for profit sectors have all tried, with both failures and successes. It is time to think creatively and push to implement practices, programs and policies that will make buying a home in the State of New Jersey more affordable for working/middle income families.”

One of the creative solutions called for is finding a way to “acquire and rehabilitate vacant and abandoned properties, and repurpose these properties for owner occupancy or rental.” The New Jersey Residential Foreclosure Transformation Act, (S-1584), which would do just that, has begun moving through the Legislature.

Another proposal calls for the creation of a South Jersey Revolving Loan Fund. To be managed by a regional foundation, the fund would accept contributions from lenders, philanthropists, businesses and others and provide loans to nonprofit organizations to acquire and rehabilitate real-estate-owned, abandoned, and vacant properties and turn them into affordable entry-level and workforce housing.

The report also suggests the state enact legislation to create land banks — governmental entities or nonprofit corporations that would focus on converting vacant, abandoned, and tax-delinquent properties to productive uses.

The report’s authors took the first step Monday in fulfilling one of their recommendations by convening a group of stakeholders, including elected officials and representatives from financial institutions, to examine the problems around foreclosure and discuss solutions.

Spielman is hopeful that implementation of the recommendations and other strategies will help individuals and communities in South Jersey, saying, “These solutions will alleviate the negative impact of abandoned properties on neighborhoods, municipalities, and the region, and help to meet this workforce-housing need.”

Original Article