In cities across the country, large lending institutions have been accused of failing to maintain their growing inventory of bank-owned foreclosed properties, abandoning or “dumping” them for nominal fees, and leaving communities to clean up the mess. Now, in a landmark decision, Cleveland Judge Raymond Pianka is holding one of those institutions accountable.
After a housing advocacy group, Neighborhood Progress, Inc., documented that dozens of properties owned by Wells Fargo were vandalized, overgrown with weeds and foliage, littered with garbage, or structurally deficient, Pianka issued a series of orders – first temporarily forbidding the bank from continuing to sell discounted homes that violated city code, then turning the temporary order into an injunction, which also required Wells Fargo to fix up or demolish all 180 of its Cleveland properties.
When Wells Fargo appealed the ruling, Pianka agreed to put his ban on property sales by the lender on hold until the Court of Appeals could review the case. In the interim, he’s ordered Wells Fargo to post a $1 million bond if it wants to continue to sell discounted and distressed properties in the city (enough to cover the costs of demolition if the bank doesn’t take responsibility for the condition of its holdings).
The backdrop to this case is a disturbing trend. Data recently compiled by Case Western Reserve University researcher Mike Schramm shows that while the inventory of vacant homes remains high in Cleveland, the number owned by banks is dwindling. Why? Increasingly, lenders are not fully foreclosing on properties, avoiding taking title to vacant homes and sidestepping their responsibility to maintain them, or unloading properties to unscrupulous investors at any price. In fact, between the time that Neighborhood Progress, Inc.’s suit was filed against Wells Fargo in December and the end of April, the lender dumped 108 properties; 75 percent of the sales were for $10,000 or less.
Cleveland has been called the nation’s foreclosure epicenter, the city has lost more than half of its population since 1950 and at one point its Slavic Village neighborhood was at the top of RealtyTrac’s foreclosure filings list. For a city already struggling to combat the community impacts of the foreclosure crisis, banks’ bad behavior is exacerbating the effects of vacancy and abandonment on residents: decreased property values, increased crime rates, and growing frustration among those fighting piecemeal to hold lenders accountable for blight.
If Judge Pianka’s injunction is upheld, it will be the first legal decision that will hold a lending institution accountable for its entire inventory of vacant properties, a victory that housing advocates believe will set an important national precedent.
But the fight isn’t over. Dubbed a “David and Goliath” battle by Neighborhood Progress, Inc.’s Frank Ford, the effort to take Wells Fargo to task is expected to be a prolonged and difficult one, and while the Court of Appeals reviews the case, a process that could take six months or more, Wells Fargo will be allowed to continue selling properties under Judge Pianka’s more lenient interim ruling.