Property values in Ohio being dragged down by foreclosed homes

Posted on January 16th, 2008 by saman

A new study by Case Western Reserve University showed that the selling of foreclosed homes by banks for less than one third their original value has caused property values in the city of Cleveland, the focal point of the country’s mortgage crisis, to decline. According to the study which tracked thousands of houses sold at the Sheriff’s auction since January 2000 to September 2007, prices of properties have continued to decline annually and they plummeted significantly in 2006 and 2007 with foreclosure sales more than quadrupling in Cleveland and Cuyahoga County since 2000.

Almost 24,000 residential properties, representing 8.8% of the total residential properties in the city and 3% in the suburbs, were foreclosed in the county since January 2000. The study suggested that this would affect surrounding areas by becoming nuisances and undermining their allure.

Last week, the city of Cleveland sued 21 mortgage bankers seeking hundreds of millions of dollars to rebuild neighborhoods that they claim to have been devastated by the lending of sub prime practices. The city alleged that this crisis had created a public disaster that hurts common property values and different tax collections.

Case University professor Claudia Coulton, the author of the report, said that a draft had been distributed among members of a civic committee working on foreclosure issues. She expects the conclusion of the report to help the city in its lawsuit.

Cleveland is not the only city to have sued lenders over mortgage troubles. Recently, Baltimore sued Wells Fargo claiming that the bank targeted black neighborhoods for high-interest mortgages. This practice, known as reverse redlining, is prohibited under the federal Fair Housing Act. The bank, however, said that it does not lend on the basis of race.

The U.S conference of mayors commissioned a report last November which estimated that 361 metropolitan areas would suffer economic losses of about $166 billion in 2008 because of the ongoing foreclosure crisis.

Coulton said that Case University divided the sales price by the price by the county auditor’s estimated market value prior to the foreclosure to calculate the property values of forecasted homes. She said that the situation was looking rosy in 2006 but claimed that this was due to market values being overestimated. The report predicated that homebuyers would not keep up with the pace of foreclosure resulting in some foreclosed properties remaining vacant. It claimed that the declining property values and the number of foreclosures make the cycle a losing proposition for both, the individuals in default and the lenders.

Among the banks buying the most foreclosed homes at auctions in 2006-07 in Cuyahoga County were Deutsche and Wells Fargo with 1,365 or 11.8 percent for Deutsche and 906 or 7.9 percent for Wells Fargo.

The study noted that the Banks purchasing houses at foreclosure auctions may not necessarily be the mortgages and instead might represent the financiers or be functioning as a trustee.