News Release: Law

May 29,  2008

Abandoned Properties Are Next Wave of Subprime Mortgage Mess

While Congress wrestles with how to ease the subprime mortgage crisis, housing expert Frank Alexander of Emory Law School is looking at what will happen in the future to neighborhoods with an overabundance of foreclosed and abandoned properties

Alexander testified before a congressional subcommittee last week on how federal funds can be targeted to neighborhoods most affected by rising rates of vacant and abandoned properties. His testimony focused on which data best enable the federal government to target new funds to the neighborhoods most in need.

The proposed legislation is significant, says Alexander, because "it recognizes post-foreclosure REO (real estate owned by lenders) is a very different problem than the housing foreclosure crisis generally."

"Once foreclosures have occurred, the costs of vacant houses are borne by the adjoining property owners, the neighbors down the street, the surrounding community, the schools and the local governments," he says.

"A vacant house drives down the value of adjoining property within one-half mile by one to three percent. In addition, it is quickly vandalized, which drops the value further, calls to police and fire departments increase, and property tax revenues decline."

As revenues decline, the problem is exacerbated. "Every state in the country is facing deficits, along with many city and county governments," says Alexander. He predicts that as the foreclosed property inventory continues to grow over the coming months, federal legislation to deal with the issue will become increasingly important.

Alexander's testimony focused on H.R. 5818: Neighborhood Stabilization Act of 2008, which would allocate $15 billion to state and local governments hardest hit by the foreclosure crisis. The bill proposes that the communities most affected acquire and convert foreclosed properties into new productive uses, including affordable housing.

Alexander, an affordable housing expert and founding director of Emory's Center for the Study of law and Religion (CSLR), has played a significant role in advising Congress and state governments on the issues surrounding vacant and abandoned properties resulting from foreclosures.

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