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City Bears Brunt of Hidden Foreclosure Costs

Cities across California are stuck with the mess left behind when banks foreclose on homeowners. In many cases, this ends up costing local governments millions of dollars each year. It's happening in the city of San Diego, according to a report from the Center on Policy Initiatives (CPI), an advocacy organization that supports working families.

The report details the hidden costs associated with foreclosures and offers solutions for the city to recoup some of these expenses.

“Foreclosure is obviously devastating to the family experiencing it,” says CPI’s Corinne Wilson. “But not much attention has been paid to the costs to our neighborhoods and to our local government.”

When a home goes into foreclosure and becomes vacant, it can negatively affect the surrounding community. For example, property-tax revenues decline as homes remain empty.

When a property goes into foreclosure, its value drops by an average of 22 percent, according to CPI. Even if a new buyer is found immediately, there is still a decline in the amount of property taxes generated.

Homes nearby also see their values erode slightly, which further lowers tax revenues.

According to the report, from the time the mortgage crisis began in 2008 through 2012, the city of San Diego will lose an estimated $117 million in property taxes as a result of foreclosures.

Homes that remain empty for some time also create other costs for the city.

Vacant properties can become hangouts for gangs and are often used for illegal activities, increasing public-safety costs. When a home is left in disrepair after foreclosure, the city must pay for its upkeep to prevent the property from becoming a blight on the community.

A single foreclosed home can end up costing local governments anywhere from $5,000 to $34,000. The report estimates this could add up to more than $800 million in extra expenses for San Diego.

CPI offers several recommendations that the city could use to lessen the economic impact to the community.

Creating a local registry of foreclosures should be the first step to help the city get a better handle on the problem and allow for more a streamlined allocation of resources, the groups said.

The city could also fine banks for not properly maintaining foreclosed properties that they own. This would help to recover some of the money spent maintaining these properties.

“We believe the city needs to take decisive action to recover the costs from the banks that have caused this crisis, and to protect our communities,” Wilson said. “Especially during this time of municipal budget crisis and service cuts to the city.”

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