Paying dearly for HUD's neglect

July 16, 2000

SUMMIT PARK is an attractive Baltimore County neighborhood where a well-priced house does not usually languish on the market. But one look inside 6716 Old Pimlico Road suggests the three-bedroom rancher is unlikely to sell for its asking price of $150,000.

Although the sleek house sits among big, old trees, the interior is a vandalized wreck. Everything of value has been stripped. All the appliances are gone; so is the kitchen sink. Holes in the walls indicate where pipes used to be.

Welcome to another HUD-foreclosure house.

Whether they are in the city or Baltimore County, many of these homes are stripped of plumbing and other basics as they stand unoccupied.

Around Maryland, some 4,000 houses, whose owners defaulted on federally insured mortgages, are for sale. If those vacant homes are in urban areas, chances are they have been stripped.

The problem, which is nationwide, has two primary causes:

Foreclosed HUD houses tend to remain vacant so long that they are tempting to thieves.

According to a 1998 General Accounting Office survey, 64.9 percent of foreclosed properties in the District of Columbia remained vacant for more than six months. Nearly 21 percent were still vacant after 24 months.

Management of foreclosed houses is a nationwide scandal.

In February 1999, HUD terminated the contract of a large management firm that had handled nearly 40 percent of foreclosure homes around the country, including Maryland. Just seven months later -- in September 1999 -- the replacement contractor was fired.

HUD officials said the second firm's performance was unsatisfactory. But federal officials also acknowledged they had failed to fully check the background of the firm's chairman, who spent three years in prison and halfway houses for forgery. A dozen of his companies have also filed for bankruptcy.

After 10 months of fill-in caretakers, HUD last week hired a new company to oversee foreclosed properties in Maryland and two dozen other states. This latest management firm, MCB Management, has a terrible mess to deal with.

Over the past three years, when management was negligent, HUD foreclosure houses in Baltimore became targets of systematic plunder. In several instances, the looting seems to have been the work of organized thieves, who gained access to master keys.

Historical houses, in particular, were targets of pillage because their architectural antiques fetch large prices in cities such as Washington.

Two examples:

The holder of a contract to buy a stately West Baltimore Victorian saw two men enter the mansion-sized house, using keys. After police were called, the men fled, leaving behind a list of items they had wanted to remove. The artifacts ranged from a stained glass window to fireplace mantels to ceiling medallions.

The elaborate front doors of another West Baltimore historic house were recently stolen in what police also believe was an inside job.

Most of the HUD foreclosure houses in the Baltimore area, of course, are not historical properties. Many have been ransacked, nevertheless.

The horror stories are endless.

In one case, a management company employee invited neighborhood street people "to clean" a house that had been largely renovated before its foreclosure.

They had a free-for-all. Even the staircase spindles and burglar bars were gone by the time they were through.

This kind of wholesale destruction causes unknown but substantial losses to taxpayers, who finance the operations of the Federal Housing Administration and HUD. Washington bureaucrats regard the write-offs as part of the cost of doing business. FHA Commissioner William Apgar told a recent congressional hearing that whatever the problems, federal home mortgage insurance programs are earning record profits.

HUD's negligence causes other damage, as well. Every time a vacant foreclosure house becomes an unmarketable eyesore, it adds to the blight of the surrounding neighborhood.

After recent Sun news stories exposed flipping of marginal properties by speculators, who sold them to unsuspecting buyers at a premium, Congress started to probe these nefarious practices.

The looting of HUD foreclosure houses is an equally appalling practice: Neighborhoods are being destabilized; taxpayers are getting bilked.

Urgent corrective action is required. If HUD monitoring processes are flawed -- as seems to be the case -- they must be changed.

Over the years, the FHA insurance program has enabled millions of Americans to buy their first home. That some of those buyers have defaulted on their loans is not the issue.

The unforgivable part is that after HUD has taken possession, it has allowed foreclosed houses to deteriorate to the point that they are of no value after the agency has taken possession.

In recent times, HUD has come up with several innovative ways to resell foreclosed houses faster. Police officers and teachers, for example, now can buy certain foreclosed homes at half of their appraised value.

Such constructive experiments amount to little, though, if houses next door are allowed to go to ruin while HUD is supposed to be their manager.

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