If It's Good Enough for Rockefeller

On Sept. 15 I attended a meeting here in Portland about fighting foreclosure in our neighborhoods. Present were representatives from citizens’ groups and a representative from the attorney general’s office. At the end of it, I had an idea about how we can turn the situation around. It depends on a legal precedent set by the Rockefellers. Hey, if it worked for them, it can work for us!

Facing astronomical foreclosure rates, dropping property values, and still-rising unemployment rates, what can we do? What if we get the states to take foreclosed properties that are sitting empty back from the banks—as they do for large commercial development projects—and fix them up for people who have lost their homes in the current economy? Oregon can’t afford to do this alone, but could partner with groups like Habitat for Humanity. Prospective residents who aren’t disabled could invest via sweat equity.

The Situation 

Even if you can’t stand numbers, please bear with me while I throw a few out there, because this will give you an idea of the size of the problem.

At the Sept. 15 meeting, I was told that the foreclosure rate is three times higher than it was during the Great Depression. Yes, it really is. This is according to the National Consumer Law Center.

The Case-Schiller Home Price Index (published by Standard & Poors) shows a decline in property values of 29% for the Portland area, and a 33% decline for the 20 cities they track. This was as of March 31. According to the Oregonian (March 8, 2011) 23.1 % of Oregonians owed more than their homes were worth. It’s even worse in some other states. Per a Bloomberg report on real estate, on May 9, 2011, 28% of mortgages in the U.S. were underwater. Figures went as high as 85% in Las Vegas and 73% in Reno.

The official unemployment rate is holding steady at 9.1%, while the actual total number of unemployed is 16.2% and rising. What’s the difference? The official rate tracks people who are unemployed and actively looked for work in the last four weeks. Total unemployed includes people who were too discouraged to continue looking and those who took part-time jobs or work well below their capacity (for example, flipping burgers instead of doing construction work).  Both figures are from the Bureau of Labor Statistics, August 2011. There are five unemployed people for every job opening (NY Times, March 11, 2011).

If you’re out of work, you can’t pay the mortgage. That sends the foreclosure rate up, flooding the market with distressed properties.

The federal government made a lot of noise about a program to help homeowners, but they relied on voluntary action from the banks. I was told at the meeting that only 5% of borrowers have had their loans permanently modified.

At this point, it is important to remember that the banks wrote one fraudulent mortgage after another. They continue to write fraudulent foreclosure documents and have them signed by people who don’t even read them. And the government bailed out those same banks with billions of dollars of our tax money.

Even if you aren't out of work, underwater, or facing foreclosure, the situation has consequences for you and your home. When the banks foreclose on a home in your community, and nobody buys it because nobody can afford to anymore, the house sits vacant. The lawn becomes a waist-high jungle of thistles and dandelions. The building deteriorates. Leaks aren’t repaired, so rain may damage walls and floors. Thieves may break in and rip out copper pipe, appliances, or anything they can sell. They may even use the house as a hideout, meth lab, or base for fencing stolen goods. The value of every neighbor’s property continues to plummet, and everyone in the community is endangered, homeowner or not.

If you rent your home, and the bank forecloses on your landlord’s property, you can stay until the end of your lease. If you have no lease, you may have to leave within 90 days. In either case you will not be reimbursed for relocation costs. (This is according to the “Helping Families Save Their Homes Act,” signed by Pres. Obama in 2009.)

Overall, a grim picture. So what can we do?

The Proposed Solution

Not many people know that the land used for the World Trade Center was acquired by eminent domain. David Rockefeller wanted to build the towers, which would increase the value of his other assets in the area, such as the Chase Manhattan Bank building. As his brother Nelson was governor of New York, Rockefeller was able to get the state to take over the properties that were in his way. Hundreds of small businesses were displaced. Some of them fought the proposal all the way to the Supreme Court, but the Court refused to take the case.

What if our state takes over foreclosed-upon houses, and fixes them up for people who need them?

Nobody likes the idea of eminent domain. Very often it displaces homeowners or destroys thriving businesses, as it did in New York City. But the houses lost to foreclosure aren’t thriving. By evicting residents and leaving the houses vacant, the banks are acting to destroy communities.

The State of Oregon, no doubt like many other states, has no money to restore distressed properties. However, the state could cooperate with partners such as Habitat for Humanity, whose purpose is to build housing for, and with, the people who need it. People who want to live in the houses repossessed from the banks could put in sweat equity.

These houses should be reserved for people who have lost their homes through unemployment, disability, or outright fraud by the banks. They should not be made available to speculators—many of whom are already gobbling up foreclosed-upon homes at fire sale prices.

The banks will oppose this project, of course. They are likely to make exorbitant demands, for instance that the taxpayers reimburse them for the total amount of the mortgage rather than the actual value of the slum they’ve created. The mission and purpose of a bank is to conserve, and increase, its profit. They can't, and won't, let one penny go without a fight. In recent years, we have had ample reminders that a bank has no capacity to care whether Americans live on the street, or whether our neighborhoods rot. We can't expect any cooperation from the banks unless there is some way for them to profit from the project, either directly or in terms of marketing and public relations.

At the foreclosure meeting on Thursday, I proposed the idea—of acquiring foreclosed houses by eminent domain and working with Habitat for Humanity—to one of State Senator Chip Shields’ aides, Mary Briggs. She was enthusiastic, and has arranged a meeting for me with Senator Shields on October 12. I will also be sending this proposal to my local Representative, Tina Kotek, and trying to arrange a meeting with her.

What Can You Do to Help?

If you live in Oregon, send an email to Senator Shields at sen.chipshields@state.or.us and tell him you support this idea. Send another to Rep. Kotek, at rep.tinakotek@state.or.us. The more people who support it, the better chance it has of becoming a reality. If you live in another state, meet with one of your legislators and propose something similar.