CUYAHOGA COUNTYHOUSING ISSUES

IN THE SHADOW OF THE FORECLOSURE CRISIS

Prepared for the Fair Lending and Vital Communities ConferenceFrank FordSenior Policy AdvisorThriving Communities InstituteJune 27, 2014

Cuyahoga Median Home Prices 2000 – 2013Residential 1-3 Family properties with no Sheriff Sale in the chain of title since 1995.

Source: NEO CANDO at Case Western Reserve University

Foreclosure: down 47% from 2007But still double the pre-crisis rate

Foreclosure prevention counseling – if funded – is more cost effective than removing blight

Good News: Board of Revision Tax Foreclosure Is Up

Judicial Tax Foreclosures Are Down – Replaced By Sale of Tax Debt to Private Investors? 1,200 Aeon & Woods Cove Foreclosures in 2013

Tax Delinquency Is An Issue – But How We Address Delinquent Vacant Property Is A ConcernCuyahoga County• $400Million + Approximate Tax DelinquencyVacant and Distressed Property• $70 Million

• Send these to the County Land Bank – or • Sell to low value investors at Sheriff Sales?• Sell At Forfeiture Sales?

Emerging Problem: Condemned Property Being Sold by the

County at State Forfeiture AuctionsProperties currently listed by CWRU NEO CANDO as being on the State Forfeiture List• 559 Cuyahoga County• 364 City of Cleveland (subset)• 99 Cleveland Condemned Structures

Recent Forfeiture Sales50+ Properties sold to Parcelnomics and Toledo Investment Team (related to Lime Deeds.Com)

Apparent Office Location for Lime Deeds

Address In Public Records for Parcelnomics and Lime Deeds - UPS store in a Strip Mall in Las Vegas

Harvard REO Investor Study – January 2014Outcome By Investor Type

The failure rate for properties acquired by out-of-state investors was double that for Ohio investors.

Failure defined as:• Vacant• Condemned• Demolished, or • Tax Delinquent

Harvard REO Study - Outcome By Investor TypeProperties acquired by large investors

(100+ properties) were 5 times more likely to fail than those acquired by small investors.

Properties acquired by non-profits, land banks or government were three times more likely to succeed than those acquired by small investors.

The Consequences Of Housing Market Decline

Shift of Tax Burden to Outer Suburbs

• Blighted property in distressed Cleveland neighborhoods and inner-ring suburbs has caused property owners in the rest of the county to pay a larger share of property tax.

• $45 Million in tax burden has shifted to other suburbs.

Thomas and Gillespie. “The Cost of Vacancy - Everyone Pays”. Thriving Communities Institute (March 2014).

Foreclosures Are Down But They’ve Left Us With An Epidemic of

Market-Crippling Blight

Cleveland City Survey October 2012May 2013

October 2013

Distressed/Condemnable 6,974 7,761 8,011

Demolition Estimate $69,740,000 $77,610,000 $80,110,000

14

City of Cleveland Distressed Property Estimates

Blight and Vacancy Are Predominantly in Housing Markets With Weaker Sale PricesCleveland Distressed Survey (August 2013)• 6,669 (83%) Cleveland East Side• 1,326 (17%) Cleveland West Side

US Postal Vacancy (NST as of 6-26-14)19,616 Cuyahoga12,480 (64%) Cleve East Side and East Inner Suburbs7,118 (36%) Cleve West Side, West and Outer Suburbs

Low re-sale prices limit options for renovation.

TALE OF TWO HOUSES2616 E. 114th Street - New home built by Buckeye Area Development Corporation in 2004. Cost - $141,000. Appraised value in 2014 is $71,900.

2620 E. 114th – foreclosed by Wells Fargo then sold to an investor who did nothing. Eventually condemned by the City of Cleveland.

Blight and Low Sale Prices Have Undermined Market-Based Solutions

Low Sale Prices Have Made Traditional Renovation Approaches Unsustainable In Many Cleveland Neighborhoods

Full “gut rehab” of home in 2006: no subsidy required.

The same rehab in 2013: $50-80,000 subsidy required in distressed neighborhoods.

17

“We Can’t Demolish Our Way Out of This”

Rehab Analysis – Harvard Study Test Homes

Neighborhood Address Gut Rehab Code Plus Code Only

Old Brooklyn 4107 W. 48 (29,296) 9,339 31,006

North Collinwood 15615 Trafalgar (55,146) (30,999) 8,875

Slavic Village 3655 E. 54 (70,504) (28,871) 3,980

South Euclid 3866 Salisbury (61,274) (24,440) 6,229

Euclid 19400 Ormiston (64,909) (20,177) (1,464)

Stockyards 5628 Pacific (73,239) (40,517) (16,740)

Subsidy (red) or Surplus (black)

Code Only = Replace mechanicals and finishes only if code not met. E.g. 20 yr furnace stays if it works. No sidewall or attic

insulation. No Green Standards.

A More Accurate Statement Would be

“We Can’t Rehab Our Way Out of This”

In Depressed Markets, Rehab Requires More Subsidy Than Demolition.

+Market Conditions Will Not Improve Until

Blight Is Reduced.=

Until Market Conditions Improve, Demolition Will Be A More Cost Effective Means of Blight Removal In Severely Distressed Sub-markets.

Solutions Need To Factor In Market Reality And A Limited Supply of Subsidy

For further information contactFrank Ford, Senior Policy AdvisorThriving Communities Institute2012 W. 25th StreetCleveland, Ohio 44113fford@wrlandconservancy.org