PART 1 OF 3: BAD-NEIGHBOR BANKS - A SUN SENTINEL INVESTIGATION
Bad-neighbor banks neglect thousands of South Florida homes, Sun Sentinel finds
- Photos: Bank-owned homes in foreclosure
Sun Sentinel Investigation
About the investigation
The Sun Sentinel found more than 10,300 code violations at bank-owned properties in 10 local cities. In those cities, four of every 10 bank-owned homes on average were cited in 2011. Read more
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In an extensive investigation of foreclosed homes plaguing our neighborhoods, the Sun Sentinel found more than 10,300 property code violations lodged against banks in 10 South Florida cities since 2007.
Municipalities cited the banks because they had title to the homes. But some banks deny responsibility for neglected houses for reasons that ordinary homeowners could not, the Sun Sentinel found.
Banks shift the blame, saying maintenance isn't their job but the responsibility of another bank or company, known as a "loan servicer." And they delay or evade accountability simply because they are faceless institutions, usually based in other states, even other countries.
The Sun Sentinel, in its investigation, identified banks as owners only in cases in which they held title to the property. But the newspaper also found that years after launching foreclosure suits, some banks or their agents balk at completing the process and taking title to homes that are unlikely to sell for much. That practice fuels a separate legal "limbo" problem that traps thousands of vacated homes in years-long court cases, often as they tumble into ruin.
Banks pay little price for letting neighborhoods rot.
In South Florida, property code violations are civil matters, dealt with mostly by fines, which when left uncorrected can compound daily and grow to be ludicrously steep — as much as $4.7 million, for example, on a rundown Fort Lauderdale house owned by Germany's Deutsche Bank.
Ultimately, banks negotiate with local officials to dramatically cut the fines so as not to hinder a home's sale.
The results of these practices are on stark display on street after street, where vacant properties sit decaying and forlorn.
They are eyesores. Many have been looted. Some have caught fire. They attract vagrants and vandals, lead to increased crime, and can depress the value of nearby homes, particularly if there is an abundance of them in a neighborhood.
Some vacant homes pose extreme danger.
In Miramar in October 2009, a common worry of parents came true. While his family was busy unpacking boxes and moving into the house next door, a toddler wandered into the backyard of an unoccupied, bank-owned house and drowned in the pool.
The boy's mother, Margarette Francis, told investigators the water was so dark and thick with "garbage" it was unrecognizable as a place to swim.
"It was, oh, disgusting and I don't think the baby knew there was a pool," she said. "The only thing I can tell you is the slide attracted him … He probably thought he was walking into a playground and he walked right into the … water."
The family has filed a wrongful death lawsuit in Miami against U.S. Bank, which had title to the house, and 16 other corporate entities that had some contractual relationship or responsibility for the home after foreclosure. A spokeswoman for U.S. Bank declined comment.
These days, banks are neighbors virtually everywhere, from the grand estates of Palm Beach to the flashy new condos of downtown Miami.
As of March, banks and other mortgage lenders owned more than 19,400 properties throughout Palm Beach, Broward and Miami-Dade counties, according to the Sun Sentinel's analysis of local tax rolls. This is up from only 2,500 a little more than five years ago.
The bank-owned homes are concentrated in predominantly minority and less well-to-do neighborhoods, where household incomes fall below the countywide medians of $48,063 in Broward, $49,879 in Palm Beach and $40,219 in Miami-Dade. They are areas where people with poor credit and insufficient income secured high-cost, highly leveraged mortgages, and left when they couldn't meet the payments.
In Fort Lauderdale, nearly two-thirds of the code violations against bank-owned properties were in areas where most of the residents were minorities, the Sun Sentinel found. Only a quarter of all city properties are located in those neighborhoods.
In a report released earlier this month, the National Fair Housing Alliance, a Washington advocacy group, charged that banks are violating the federal Fair Housing Act by neglecting the upkeep on homes in minority neighborhoods and steering real estate agents to the banks' better-preserved homes elsewhere.
The organization has called on federal regulators and law enforcement to investigate the banks for housing discrimination practices.
Wells Fargo, one of the banks identified, denied the allegations. The bank "conducts all lending-related activities in a fair and consistent manner without regard to race; this includes maintenance and marketing standards for all foreclosed properties for which we are responsible," said company spokeswoman Vickee Adams.
Homes ordered torn down
Since the real estate crash six years ago, dozens of South Florida municipalities have passed laws requiring that homes in foreclosure be registered by lenders or their agents once they become vacant. That has helped foster communication with the banks and led to quicker responses to local concerns.
"I'd say most banks want to do the right thing," said Brian McKelligett, Fort Lauderdale code enforcement supervisor.
But banks can be bad neighbors. In the cities surveyed by the Sun Sentinel, four of 10 bank-owned properties on average were cited for violating municipal health, safety or appearance codes in 2011.
In city after city, code enforcement officers have found themselves in the odd position of issuing citations to top Wall Street financial firms for slimy green pools, ruined roofs, broken windows, missing doors, crumbling stucco, peeling paint, heaps of trash and overgrown lawns that can harbor snakes and rats.
Responses from the banks come weeks or months later, if at all.
"Please cut grass and weeds on a regular basis," a code inspector in Miramar requested on an August 2011 ticket left at 2341 Sabal Palm Drive, a home owned by HSBC Bank USA, the American subsidiary of a global conglomerate headquartered in London.
At the same house two months later, the bank was ordered within 72 hours to "remove bees from electrical outlet that is located by front window," and later that month told: "Filthy, dirty pool must be cleaned and maintained to prevent a breeding ground for mosquitoes or becoming a health hazard."
The bees were quickly removed. But by November 2011, a special magistrate had to threaten the bank with fines of $50 per day if it did not address the other violations, which also included trash, a damaged fence, and a ripped pool enclosure.
With the issues still uncorrected on Jan. 11 of this year, the bank was hit with penalties of $1,650 per violation. It finally fixed the problems that month, but not before the city secured the fence and threw mosquito-killing chemicals into the pool. In late February, the bank paid $8,250 in fines.
At times, inspectors have found egregious conditions, such as a Fort Lauderdale pool that turned into a "stagnant pond" with "poisonous toads."
In Miami, an inspector discovered that part of a seawall at a Wells Fargo-owned property had collapsed. Waves were eroding the soil in the backyard and exposing the shell of the pool. "Any day now, this pool will float away into the ocean," the official wrote in city records. The bank sold the house in December to a new owner for $1.2 million.
Some properties are so unsafe, local officials have ordered the banks to tear them down.
In Fort Lauderdale, a house at 4820 NW Ninth Terrace had been bank-owned for more than a year and had mildew growing inside the walls "everywhere" and a "completely collapsed" living room roof, a city building inspector testified in October, when the home was scheduled for demolition.
Anthony DiMarco, Tallahassee lobbyist for the Florida Bankers Association, said most code violations involving foreclosed properties occur before the bank gets title. Once the bank takes possession, it generally hires property preservation companies to tend to the homes. But, DiMarco said, "I'm sure mistakes are made. I'm not surprised by that, we're only human beings in this process."
Even after taking title to a property, though, banks often argue they really aren't the legal owner, and hence not responsible for a home's upkeep.
They say they are merely the "trustee" for the true owners, the holders of mortgage-backed securities. As such, the banks say they are responsible only for holding the mortgage documents and for collecting mortgage payments to send to investors. Those payments were collected from borrowers by yet another party to the transaction, the loan servicers, which are separate companies that may be related to other banks.
It's the loan servicers, banks argue, that have the duty under the trust agreements to ensure that properties do not become rundown or neglected.
For local municipalities with limited time and resources, sorting out these complex business relationships may be a daunting task, made tougher by the numerous bank mergers and disappearances in recent years.
Fort Lauderdale, for example, has spent nearly $1,000 removing rubbish and trimming trees and weeds at a house at 1321 NE 14th St., titled to HSBC Bank.
Since it went into foreclosure in 2007, squatters have moved in and out. Trees and plants grew into a jungle in the front yard. Siding on the second floor rotted and foam insulation melted through the rotted boards.
HSBC Bank declined a request from the Sun Sentinel for comment, but referred questions to Ocwen Financial Corporation, a West Palm Beach company that services mortgages, which did not respond.
Neighbor Don Nelson thinks the house's shabby condition has contributed to the declining value of his own home next door, which is worth about $123,000, according to the Broward Property Appraiser — down from $139,000 in 2010.
The online hotel marketer doesn't understand why banks can't be better neighbors, why they neglect the upkeep of their properties and allow many to deteriorate. "They let them sit," he said. "The longer they sit, the more the value is diminished."
Not our job
The Sun Sentinel found that code violations have been filed repeatedly against major U.S. lenders that are household names, including JPMorgan Chase, Bank of America, Wells Fargo, CitiMortgage, and BNY Mellon.
Government-backed Fannie Mae and Freddie Mac are also frequent violators, as are a galaxy of corporate entities that include the name Deutsche Bank, headquartered in Frankfurt, Germany.
Deutsche Bank has come under particular criticism for failing to take care of South Florida homes, even as it has become a major property owner in the region.
In 2006, Deutsche Bank held about a dozen properties in Broward and Palm Beach counties combined. By March of this year, that number exploded to more than 1,100.
Of the roughly 10,300 bank-owned property code violations the Sun Sentinel found in its survey, entities with Deutsche Bank in their name were responsible for 1,670, or 16 percent. Deutsche entities hold eight percent of bank-owned properties in those cities.
Lake Worth Community Development Director William Waters called Deutsche Bank "one of the irresponsible banks."
Former Miami Code Enforcement Director Sergio Guadix said it is "one of the banks we've had many problems with."
Deutsche Bank's defense? Property upkeep is not our responsibility.
While it may be the owner of record, "The bank itself has no economic interest or ownership stake in the properties," said John T. Gallagher, a New York-based spokesman for Deutsche Bank. Instead, the bank says it merely acts as the trustee for mortgage-backed bond holders. As for home maintenance, it says that's the responsibility of separate entities, the "loan servicers."
In northwest Fort Lauderdale, LaToya Gibson, 36, lives in a pristine, one-story home painted a cheery buttercup yellow. Next door, at 1032 NW Fourth Ave., is a dilapidated and vacant 60-year-old bungalow that Deutsche Bank Trust Companies America moved to foreclose in April 2008.
Broward Property Appraiser's Office records show that in lieu of foreclosure, title was surrendered to the bank in January 2009. The original owner intended to raze it and two adjacent properties to build townhouses. Still it sits, decaying.
City officials have brought code violation cases against the bank more than half a dozen times in the past three years. The list of violations includes an unsafe water heater, a disintegrating front porch, an electrical system in a "state of disrepair," exposed wiring and windows without glass.
At various times, inspectors found vagrants holed up inside. Rubbish piles accumulated on the swale. The yard grew so wild it became home to rats and snakes. Ants, bees and termites thrived, and infested Gibson's house next door.
In September 2009, it came to this: Someone set up a auto repair shop on the front lawn. "Has a crane in the yard to remove motors from cars," records for the house state.
The city paid $775 to have the doors and windows boarded up.
It didn't work. Squatters found their way back in.
Over the past several years, it has cost the city nearly $3,000 to mow the grass and remove trash from the property, records show. As of mid November, liens against the house stemming from code violation fines totaled nearly $4.7 million.
Gibson has called Deutsche Bank repeatedly to complain. "No one ever calls you back," she said.
Over the years, city officials tried unsuccessfully to make Deutsche Bank fix up the house. "Their only response has been to deny owning the property," McKelligett, the Fort Lauderdale code enforcement supervisor, wrote in an August 2009 email to a county office.
Deutsche Bank told the Sun Sentinel that GMAC Mortgage Corp. is responsible for maintaining the house.
GMAC spokeswoman Susan Fitzpatrick initially said the company had no record of the house, but after being provided with a loan number by the Sun Sentinel last month said: "GMAC Mortgage is looking into the circumstances surrounding the property and will work directly with all parties involved to resolve the issue."
Following the Sun Sentinel's inquiries, an attorney for Deutsche Bank began working with Fort Lauderdale officials to obtain a permit to demolish the house.
On a recent visit to the foreclosed home, a Sun Sentinel reporter found a homeless man living on the porch. "Sometimes he's even naked," Gibson said.
After someone tried to break into her house, Gibson said: "I went and purchased a gun."
She is angry with the nation's top banking executives, who she said appear unfazed by the neighborhood decay she blames on their irresponsibility and neglect. "Unless it's next door to their house," she said, "I don't think they care."
Staff researcher Barbara Hijek contributed to this story.