Foreclosed Properties Damage Quality of Life for Neighbors

Since the foreclosure crisis, several studies have linked foreclosures to falling property values for neighboring homes. However, one researcher from the ""Federal Reserve Bank of Boston"":http://www.bostonfed.org/index.htm recently set out to discover the impact of foreclosed properties on neighbors who aren't looking to sell their homes. The ""study"":http://www.bostonfed.org/economic/ppdp/2013/ppdp1301.pdf observes the residual effects of foreclosures on neighbors' quality of life.

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Ultimately, researcher Lauren Lambie-Hanson found property conditions begin suffering when a homeowner enters foreclosure and worsen when properties become bank-owned.

Lambie-Hanson observed properties in Boston, Massachusetts to determine at what point foreclosed homes are most likely to be a source of complaint to the city. She followed properties from the onset of delinquency through the foreclosure process.

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The likelihood of a neighbor complaining about a particular home doubles once a homeowner enters the foreclosure process. Once a property is in REO, the likelihood increases nine-fold, according to the study.

""I find borrowers begin neglecting maintenance when they are seriously (90 days or more) delinquent, and property distress becomes more common once the owner has been in foreclosure for over a year,"" Lambie-Hanson said.

However, ""properties are most likely to be the subject of constituent complaints when they are bank owned,"" she added.

Resolving these complaints can prove challenging, according to Lambie-Hanson, because it can be difficult to determine and contact the owner or party responsible for property upkeep.

Since 2008, Boston has required lenders to register foreclosed properties with the city each year, but Lambie-Hanson suggests this ordinance is not enough.

She supports increasing enforcement efforts for inspection and code violations, but she adds, ""to be most effective, these efforts would need to begin before properties become REO â€" and so before they are registered under the ordinance, a daunting task.""

She also warned that policies that lengthen the foreclosure process ""extend the time properties are in ownership limbo,"" thus increasing the time during which they infringe on neighboring owners' quality of life.

In contrast to foreclosures, short sales spend less time in ""ownership limbo,"" and Lambie-Hanson found ""no relationship between property upkeep and short sale attempts.""