A new study released by the Federal Reserve Bank of Cleveland suggests that fast-tracking foreclosures on vacant properties could provide states with substantial savings. Researchers Kyle Fee and Thomas J. Fitzpatrick used two judicial states, Ohio and Pennsylvania, to show that savings from fast-tracking could save at least $24 million annually.
The report notes, "In Ohio, the annual savings from a foreclosure fast-track is estimated to be between $24,000,000 and $129,000,000," and that savings are "an elimination of deadweight losses, rather than a shifting of costs. That is, these costs already exist and benefit no one."
Pennsylvania could have saved an estimated $24 million to $54 million.
States that require foreclosures to be conducted through the courts "have decided that protecting the rights of property owners is worth the higher cost of judicial foreclosure relative to nonjudicial foreclosure," Fee and Fitzpatrick said.
Costs are incurred when properties are left vacant, leaving them more susceptible to be vandalized and stripped of valuable items, like metal. Repairing these homes to sell is a costly endeavor, and by speeding up the foreclosure process, properties would be left vacant for smaller periods of time, resulting in less damage.
Additional concerns arise as unoccupied homes create health and safety hazards, and cause homes in neighboring areas to decrease in home value.
The report notes that the costs of vacant properties provide no value, and "these costs are born primarily by the lender through rehabilitation costs or lower sales prices."
By fast-tracking homes through the judicial process, researchers Lee and Fitzpatrick found that Ohio could have lowered its foreclosed inventory by .5 percentage points, to less than 2 percent instead of the current figure of just under 2.5 percent. Pennsylvania would have seen similar results, according to the report.
In the study, Lee and Fitzpatrick found that fast-tracking foreclosures could shave off between 8 and 43 days in Ohio, and 9 to 20 days in Pennsylvania.
However, creating legislation to hasten the judicial process is likely to be difficult.
"Crafting legislation that adequately balances the interests of creditors and homeowners while meaningfully fast-tracking foreclosures is no simple task, and would likely require the input of creditors, communities, foreclosure attorneys, and the judiciary," the report said.