Cities increasingly holding lenders responsible for maintaining foreclosures

With cash-strapped cities lacking the funds (or really the responsibility) to maintain foreclosed units, some are getting quite serious about chasing down the scofflaws -- even if that means threatening an East Coast banker with a crime. And the few billions that the stimulus plan offered cities to clean up derelict housing? A veritable drop in the bucket. From a Wall Street Journal story (subscription required):

Officials at a Citigroup Inc. office in St. Louis placed a call to this desert town recently. The bank had caught word that Indio was coming after the lending giant with fines and threats of criminal charges. The offense: an algae-infested swimming pool at 79760 Eagle Bend Court.

Citigroup wound up in charge of the foreclosed home, one of thousands of such properties it was managing across the country. But last year, Indio passed a law that allowed it to charge banks with a criminal misdemeanor if they allowed a home to fall into disrepair...

The hard-line approach is part of this town's attempt to gain leverage over some of the nation's largest lenders. A couple of years ago, Indio was a real-estate bonanza. Old date farms were closing down, sprouting subdivisions in their places. Today it's a different scene with one in 10 houses either in default or foreclosure...

Lenders say that such repairs and upkeep are part of the normal course of business, and that Indio's ordinance hasn't prompted any special actions. A Washington Mutual spokesman said local real-estate agents send in photos of bank-owned properties so the lender can watch for disrepair from afar. A Fannie Mae spokeswoman said the lender's first goal is to "stabilize neighborhoods." New York Mellon said its role as trustee didn't merit citations from Indio.

Even before the mortgage crisis erupted in full, big cities like Cleveland and Buffalo had fashioned laws of their own to browbeat banks into taking care of urban blight. Now some small towns are also taking matters into their own hands.

Indio's neighbors Palm Springs, Desert Hot Springs and Cathedral City each pushed ahead with laws much like Indio's. The town's own ordinance was fashioned off a 2007 law from Chula Vista, a city south of San Diego which began fining lenders up to $1,000 a day for unsightly or dangerous code violations such as broken windows...

City officials say they ginned up a campaign to notify the banks about the new law, but few took action. "The banks were trying to test us to see if we were serious about this," says Jason Anderson, a code-enforcement officer in Indio.

Countrywide, one of the biggest lenders in the area, initially just tried to make the problem go away by writing checks, say city officials. Instead of attending to the upkeep on the properties, they'd ask, "How big was the fine?" Mr. Anderson recalls.

City officials say Countrywide has since become one of the most proactive lenders, contracting local real-estate agents to monitor properties and paying for gardeners to handle the upkeep. "There's considerable financial incentive for the bank" to maintain properties, a Countrywide spokesman said...