Published October 20, 2015
By Joe Tyrrell

At NJ Spotlight On Cities, local government officials, planners talk about getting a grip on ongoing foreclosure crisis

Despite a lack of direction at the state level, some New Jersey cities are taking advantage of tools to combat the state’s lagging economy and continuing foreclosure crisis.

Newark is “collecting about $40,000, $45,000 a week” under a creditor-responsibility law requiring owners to maintain vacant properties and designate an in-state contact for complaints or face fines of up to $2,500 a day, according to Deputy Mayor Baye Adofo-Wilson.

The revenue is helping Newark staff programs to eliminate the blight abandoned properties bring to neighborhoods, and for programs to help homeowners with “underwater” mortgages, owing more than their properties are worth, remain in their homes, Adofo-Wilson said. Those are issues “federal policies and state policies have not really addressed” despite their direct impact on communities, he said.

“We believe that housing is a fundamental pillar of urban stability,” said Wayne Meyer, president of New Jersey Community Capital, which has offices in Newark and New Brunswick.

On that basis, New Jersey is falling behind most of the nation.

The early 21st century housing bubble, subsequent Great Recession and bank bailout produced a massive transfer of property ownership across the nation from individuals to financial institutions and investors.

But many states have put the crisis behind them, said Peter Reinhardt, director of the Kislak Real Estate Institute at Monmouth University. He and others spoke at the NJ Spotlight on Cities conference Friday in Newark.

Nationwide, the number of homes somewhere in the foreclosure process has dropped to its lowest level in 10 years, according RealtyTrac. an Irvine, CA, real-estate analysis firm.

Yet New Jersey again has the dubious distinction of the worst rate in the nation, one in every 451 in September, according to RealtyTrac. For second-place Nevada, the rate was one in 555, the firm found.

Foreclosures completed with bank repossessions in the first half of this year were still 37 percent above prerecession levels, and increased 24 percent in New Jersey, according to RealtyTrac. State court records show more than 34,300 new foreclosure cases had been filed in state courts this year as of October 15.

Meyer pointed to other data from RealtyTrac, indicating that of New Jersey’s current stock of 70,000, some 17,000 are vacant. Yet, even with prices well below prerecession levels, many New Jersey families struggle to pay for their homes, he said.

“Here in Newark, more than 50 percent of families spend more than 50 percent of their income on housing,” Meyer said.

NJCC has worked with the city and federal agencies to acquire housing units in Newark and elsewhere in the country and offer better terms to borrowers struggling with expensive, underwater mortgages.

The Federal Housing Administration has been more flexible in recent years in making some of its mortgage inventory available to offers from nonprofits, Meyer noted. “But a lot have been bought by private equity funds,” which do not necessarily include “neighborhood sustainability” among their outcomes, he said.

“There are literally thousands of properties that are going to be available through federal auctions” of New Jersey mortgages in the coming months, Meyer said. “We’re not suffering from a lack of private capital in New Jersey,” but a lack of policies to ensure redevelopment outcomes bolster communities, he said.

“Local governments need to be directly involved” in development and redevelopment, said Staci Berger, president and CEO of the Housing and Community Development Network of New Jersey.

But Gov. Chris Christie has prevented municipalities from access to major tools, according to Berger. She cited the governor’s repeated vetoes of versions of a law allowing the establishment of “land banks,” which make it easier for towns to amass properties, and the Residential Foreclosure Transformation Act, which would give nonprofits a leg-up to put together groups of foreclosure properties.

She praised the Abandoned Properties Rehabilitation Act for allowing municipalities to put some teeth into their property-maintenance ordinances. Aside from the penalty provisions used by Newark, the 2004 law provides eminent domain against small areas of “spot blight,” putting vacant and abandoned properties into receivership, and accelerating tax lien foreclosures.

“We still have a huge problem here because the state government thinks it’s a market problem, and it’s up to the market to solve it,” Berger said. “Meanwhile, all this vacant and foreclosed housing acts as a continuing drag on the state’s economy.”

Even some federal housing aid funneled through the state has not strengthened the market, Berger said. She cited the Homekeeper program, which provided loans that turn into grants for troubled borrowers if they remain in their homes for 10 years.

“But that’s just a passthrough to the banks, paying them regardless of the terms of the mortgages, rather than helping borrowers get modifications to give them a better chance of keeping the homes,” she said.

“There’s not enough public money to solve all these problems,” said Reinhardt. Conversely, he added, “I’ve heard developers say, ‘I’m not willing to go into an area that’s sort of blighted.”

So participants stressed the importance of cooperation between the public and private sectors, as between Newark and NJCC, as well as initiatives where local control is paramount.

In Trenton, applicants for the city’s “homesteading” program met with bank representatives two weeks ago. The initiative aims to make properties, many acquired through foreclosure for non-payment of taxes, available to first-time buyers at very low cost.

“What we’re hoping is that we’re actually bringing somebody into a property in the next six months,” said Monique King-Viehland, the city’s outgoing director of housing and economic development.

In the absence of a state redevelopment policy, Trenton Mayor Eric Jackson on Monday announced the formation of an initiative with area businesses and universities. Called Trenton Future, it will concentrate on the city’s downtown core, he said.

In Newark, Adolfo-Wilson said developers are anxious to pursue opportunities in some neighborhoods, including luxury units and a “vertical farm” in the Ironbound. The key is finding projects that benefit both

Elsewhere, the city has targeted tracts in the west and south wards. The program will incorporate the use of eminent domain against excessive mortgages, he said.

Eminent domain allows governments to acquire property, even from unwilling sellers, for public uses such as building schools or roads. The courts here and nationally have interpreted that broadly, so the result often has benefited private interests such as shopping malls or casinos.

Since the action is sure to generate lawsuits from the financial institution, the first phase likely will involve only a small number of properties, “but we think we’re on firmer legal ground as part of a redevelopment plan,” Adofo-Wilson said.