MILWAUKEE — Four years after the housing bust, a FOX6 investigation found nearly 4,000 vacant homes still littering Milwaukee neighborhoods. The owners couldn’t pay the bills, so the banks foreclosed. But it’s what happened after some of those foreclosures that a judge recently called, “Unconscionable.”
It starts with what might seem like a simple question – When is a foreclosure really complete?
You might think that once a bank wins a foreclosure judgment against you in court, you no longer own the home. According to the City of Milwaukee, that’s not true.
FOX6’s investigation found banks — both big and small — winning foreclosure judgments, then changing their minds once they see the condition of the property. The bank “walks away,” leaving homeowners like James Matson holding the bag for code violations and taxes, and leaving empty shells to rot in Milwaukee neighborhoods.
Back in 2005 and 2006, Matson bought a half-dozen old houses in Milwaukee, fixed them up and rented them out. He’d hoped the income from those rental properties would sustain him into his golden years. Then, “the bottom fell out,” Matson said.
The economic downturn hit his tenants hard. They couldn’t pay their rent, so Matson couldn’t pay the mortgages. He had no choice but to the let banks foreclose.
“It was really a heart-rending decision. The way I was brought up, we live up to our obligations. I tried like hell to live up to my obligations and, you know, when you are dependent on other people, you can only do what you can do,” Matson said.
By the fall of 2009, two banks — Waterstone and Deutsche — had secured foreclosure judgments against five of Matson’s properties, and Matson turned in the keys.
“They were in good condition. They had furnaces. They had new plumbing. They had flooring. They had bathrooms. They were viable properties,” Matson said.
Three years later, some of the homes are still vacant. They’ve been stripped by thieves and trashed by squatters. In all that time, however, there’s still one thing that has not happened. Three of the houses have yet to be sold in a public auction.
“Apparently they can take their sweet time selling them and in the meantime, they can leave you on the hook for them, which is what’s happening to me,” Matson said.
Art Dahlberg, Commissioner of Neighborhood Services for the City of Milwaukee says that until a foreclosed home goes through a sheriff’s sale, the foreclosure process is not complete.
“Until the name on the title has changed, the ownership still lies with the owner. Obviously, our largest concern is we want people to stay in the homes,” Dahlberg said.
Dahlberg is in charge of the city department that enforces nuisance and building code violations – a job made even more challenging by the dramatic increase in abandoned homes since the housing bust.
With help from the Wisconsin Center for Investigative Journalism, the FOX6 Investigators found 3,737 homes in Milwaukee that have gone into foreclosure since 2009 and are still sitting empty.
A map of those homes is like a blanket over the city.
In some neighborhoods, there are three or four boarded up houses on every block.
“It`s horrible. It`s sad. These houses are like a missing tooth in a mouth of teeth,“ Matson said.
“Everything is disintegrating and nobody wants to do anything to make it better,” Amy Marsh, a Milwaukee homeowner who lives in the same neighborhood as one of Matson’s abandoned properties said.
UWM economics professor Kundan Kishor says there are both economic and social problems that result from abandoned foreclosures. They are magnets for crime and a drain on nearby property values.
“It creates a domino effect and it creates a negative affect for almost everyone in the neighborhood,” Kishor said.
The question for Dahlberg and the City of Milwaukee, though, is how to ensure that those responsible for the property maintain it during and after the foreclosure process.
About a year after Deutsche Bank foreclosed on one of Matson’s houses at 2724 W. Auer Avenue, the city started sending nuisance violations to Matson. He tried to tell the city he didn’t own the house anymore.
“The house was foreclosed on. The bank owns it. I no longer own it. And they said, ‘Your name is on it. You`re responsible for it,'” Matson said.
Before long, police were knocking on Matson’s door. He was cited and ordered to pay thousands of dollars in fines.
“I’ve said, ‘You can see there is a judgment of foreclosure. Why don`t you guys go after the bank for this?’ And, I get silence,” Matson said.
What Matson didn’t know is that after foreclosing on the home, Deutsche Bank released the lien and issued a “satisfaction of mortgage.” In other words, the bank walked away.
“What many lending institutions do is they go back and reevaluate the property. They make a determination, from probably a purely economic perspective, is the property still worth taking back?” Dalhberg said.
Matson’s Attorney, Kyle Jesisnki, says once the banks do a cost-benefit analysis, they may decide they don’t want the property anymore. That’s what happened to Matson.
“They walk away. There’s no notice. He finds out a year and a half later these properties have been abandoned. They’ve been looted. They’ve been vandalized. Squatters! You know, the whole nine yards. Now they are saying, ‘We gave that house back to you,'” Jesinski said.
UWM economics professor, Kundan Kishor, adds, “There is a legal issue here, right? Who owns the title?”
Under normal market conditions, the bank would move quickly from foreclosure to sale, but Professor Kishor says the housing bust has more banks sitting on properties. That has focused increased attention on who owns a property between foreclosure judgment and a sheriff’s sale, and how long does a bank have to complete the process?
“If it`s three months? Ok. Six months? Ok. One year? I think you are starting to push it. Two years, two-and-a-half years? I think that’s abuse of the system,” Jesinski said.
Earlier this year, Jesinski asked a Milwaukee County judge to force the servicing company for Deutsche Bank to sell a house at 2219 N. 37thstreet.
“You asked for a foreclosure judgment. You got your foreclosure judgment. You were ordered to sell the house. Now sell the house!” Jesinski says of the lending company.
In a hearing on May 14th before Milwaukee County Judge Dominic Amato, an attorney for Arch Bay Holdings, the servicing company handling the loan for Deutsche bank admitted “The plaintiff doesn’t want the property.”
The judge countered, “Because the plaintiff doesn’t want to have to pay the obligations on the property.”
Judge Amato ordered the house to be sold immediately and admonished the servicing company’s attorney in open court.
“You can not do what you’re doing. It’s unconscionable. It’s inequitable. It’s unfair. And it’s disgusting,” Judge Amato said.
It’s also common, and experts say until the housing market recovers, it’s a problem that‘s not likely to go away.
In an effort to deal with abandoned properties in foreclosure, the City of Milwaukee created an ordinance in 2009 that requires lenders to maintain those properties during the foreclosure process. However, the ordinance as originally passed lacked any real teeth, so Commissioner Dahlberg says it was difficult to enforce. He says revisions to the law last year have resulted in more enforcement actions.
Dahlberg says he meets regularly with the five biggest lenders — Bank of America, U.S. Bank, Deutsche Bank, JP Morgan Chase and Wells Fargo to talk about maintenance of properties in foreclosure.
Dahlberg says homeowners bear their fair share of responsibility also, so long as their name remains on the deed.
Waterstone Bank and Deutsche Bank foreclosed on some of Matson’s properties, then decided they didn’t want them. Now, those homes are in terrible shape.
Waterstone Bank declined to answer any of FOX6’s questions relating to this story. At Deutsche Bank, it was Wells Fargo that responded.
Wells Fargo serviced the loan for Deutsche Bank, and in an email to FOX6, Wells Fargo said they decided it was not cost effective to take the title to the property in question, so they released it back to the homeowner.
Wells Fargo says it did notify Matson that it was giving the house back to him, but Matson says he never got that notice.