From the U.S. Government Accountability Office, www.gao.gov Transcript for: Watchdog Report: Issues Surrounding Abandoned Foreclosed Properties Audio interview by GAO staff with A. Nikki Clowers, Director, Financial Markets and Community Investment Related GAO Work: GAO-11-93: Mortgage Foreclosures: Abandoned Foreclosures Not Widespread, but Have Negatively Affected Certain Areas Released on: November 15, 2010 [ Background Music ] [ Narrator: ] Welcome to GAO's Watchdog Report, your source for news and information from the Government Accountability Office. It's November 15, 2010. The recent spike in home foreclosures is affecting home owners and communities alike. In neighborhoods where empty, bank-owned homes cost more to sell than can be made on the sale, some banks are just walking away. A group led by Nikki Clowers, a director in GAO's Financial Markets and Community Investment team, recently examined the phenomenon of abandoned foreclosures and their impact on communities. GAO's Jeremy Cluchey sat down with Nikki to learn more. [ Jeremy Cluchey: ] What are the steps that typically lead to the abandonment of a foreclosed property? [ Nikki Clowers: ] There are a number of steps that are involved with a property becoming abandoned, and how we define “abandoned foreclosures” in our report are properties for which the servicer has initiated foreclosure but subsequently decides to halt that foreclosure process and the property has become vacant. So the question really becomes--Is why do homeowners as well as servicers walk away from these properties? And there can be a variety of factors driving these decisions but what we've found is for servicers, they typically walk away from properties when they determine that the cost of completing the foreclosure process is greater than the proceeds they expect from the auction sale. And for the borrowers or homeowners, what we've found is that there's a great deal of confusion about their rights and responsibilities both in terms of their rights to stay in their home until the foreclosure process is complete as well as their responsibilities for maintaining that property until the foreclosure process is complete. [ Jeremy Cluchey: ] How prevalent did GAO find this phenomenon to be in the United States today? [ Nikki Clowers: ] Well, we estimate that there is between 14,500 and 34,000 abandoned foreclosures that have occurred in the last 2 years. This represents less than 1 percent of all vacant properties in the United States and an even smaller percentage of the total housing stock. And while abandoned foreclosures have occurred across the United States, they tend to be concentrated in areas that have experienced significant economic distress. And while they're not common, they do have significant impacts on the communities in which they occur. [ Jeremy Cluchey: ] Can you talk a little bit more about some of those impacts? [ Nikki Clowers: ] Sure--like other vacant properties, abandoned foreclosures can increase crime activity, they can decrease property values in the neighborhood, as well as increase costs for the local governments that must maintain or demolish those properties. Through our case studies we found that state and local governments are taking a number of actions to address abandoned foreclosure problems, for example community groups in a number of areas we visited have increased counseling, they are trying to educate homeowners about their rights and responsibilities to maintain their homes throughout the foreclosure process, as well as their rights to stay in their homes until the foreclosure process is complete. Some communities are also requiring servicers to report to them when properties become vacant so the local governments can more quickly provide the additional attention that these vacant properties often require. We also found that some communities have created land banks, which allow, which purchase properties that banks would not otherwise be able to sell and they turn those into more productive uses in the community. [ Jeremy Cluchey: ] Your team conducted over 100 interviews for this report. Can you talk about some of the places you traveled and what you learned there? [ Nikki Clowers: ] Sure--we conducted 12 case studies in 9 different states including Michigan, Ohio, Florida, and California, and we tried to select states from varying regions that also had varying economic conditions as well as varying foreclosure requirements. And through our case studies we talked to a number of state, city, and local officials. For example we often spoke to the local code enforcement officials because they're often the first ones to determine that a house has become vacant in their normal duties enforcing the city codes. We also spoke to judges about the prevalence of foreclosures--abandoned foreclosures that they see coming through the court system--as well as potential solutions for addressing those abandoned foreclosures. In each of the cities we visited we also toured neighborhoods to observe first hand the types of impacts that abandoned foreclosures can have on these neighborhoods and communities. The key take away is that while abandoned foreclosures are not widespread, they can have significant impacts on the communities in which they occur. [ Music ] [ Narrator: ] To learn more, visit GAO's Web site at gao.gov and be sure to tune in to the next edition of GAO's Watchdog Report for more from the congressional watchdog, the Government Accountability Office.