TheTimesTribune.com, Corbin, KY

Local News

August 28, 2012

Task force examines foreclosures in Kentucky

CORBIN — By Ronnie Ellis / CNHI News Service

There are about 20,000 foreclosures in Kentucky each year; nearly one in four mortgaged properties is “upside down,” with a lower property value than the mortgage debt; and one in 10 owners of mortgaged property is 30 days or more behind in his payment.

Yet Kentucky has fared better than the nation and most of the surrounding states. According to the RealtyTrac website, on average there is one foreclosure for every 2,826 households in Kentucky compared with one in 686 nationally.

That was some of the data presented Monday to a state House task force looking at the foreclosure “crisis” in Kentucky, a task force that isn’t entirely sure what it can do to address the problem.

According to Ben Carter, an attorney who works with the non-profit Network Center for Community Change in Jefferson County, there are alternatives to foreclosure which are less expensive for both the lender and the borrower and benefit neighbors and the community.

Carter said there are about 20,000 foreclosures each year in Kentucky, about half of those in Jefferson County. On average, he said, those cost the lending institutions about $50,000 each. But a relatively simple loan-modification process might save the lenders lost money and keep homeowners in those homes.

Yet many homeowners facing foreclosure don’t understand their options.

“Some owners get foreclosure notices and think they’ve been evicted and just leave their homes,” Carter told the task force.

That causes problems for everyone. Lenders must go through a judicial foreclosure process, one in which they incur legal costs and often repair and maintenance costs on abandoned property. Usually, it takes at least six months to get the property back on the market – after the foreclosure is complete and that process sometimes takes as long as two years.

Carter said neighbors suffer on average a 1 to 2 percent drop in their own property values when a home in their neighborhood is foreclosed on or abandoned. That costs state and local government property tax revenues and local school districts revenue, too.

J.D. Chaney, Director of Legal Services for the Kentucky League of Cities, says there are other costs. Homeowners often abandon foreclosed properties that then are vandalized and become eyesores and environmental threats. Local governments sometimes must pay for boarding up the properties and keeping lawns mowed.

Such homes are sometimes stripped of copper  lighting and plumbing fixtures, either by the departing owner or tenant or by vandals. Some become sites of criminal activity, including drug trafficking.

In some cases, according to task force member Rep. Kevin Sinnette, D-Ashland, who is a former assistant city attorney, even some out-of-state banks walk away from such properties.  Sinnette said it’s difficult in many cases for the local jurisdiction to identify the mortgage holder.

It’s not a problem with local, community banks, Sinnette said, but mortgages are often sold to other lenders in the form of securities and in such cases it’s almost impossible to determine actual ownership.

Rep. Arnold Simpson, D-Covington, wondered aloud what lawmakers can do because mortgages are contracts.

“Can legislators force these loan modifications?” Simpson asked Carter. He asked if Carter was asking the legislature “to impair the right of contract?”

Carter said instead the legislature could work with the judicial branch to make sure homeowners understand their options and provide education. He suggested foreclosure notices be required to include information about those.

Rep. Jesse Crenshaw, D-Lexington and an attorney, said foreclosure isn’t his specialty but that he handled one case for an acquaintance who worked out a loan modification with his lender and remained in his home making payments.

But Crenshaw said when he appeared in court on that case, “in one court, on one Friday, on one docket” a judge approved 22 foreclosure notices in rapid succession, primarily because there was no one to defend the homeowners.

Task Force Chair Rep. Joni Jenkins, D-Shively, said the group will invite other interested parties to meet with the lawmakers and will offer recommendations on the issue to the 2013 General Assembly, which convenes next January.

Ronnie Ellis writes for CNHI News Service and is based in Frankfort. Reach him at rellis@cnhi.com. Follow CNHI News Service stories on Twitter at www.twitter.com/cnhifrankfort

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