'Zombie' homes scare neighbors, blight city

In midst of housing crisis, 430 homes sit empty and Portland does not have effective program for dealing with them.

The house at 16007 S.E. Powell Blvd. has an elegant, snow-white calla lily blooming in a flower pot beside the front door.

Inside, three Portland police officers cough and gag as they maneuver around piles of feces, glass bottles filled with urine, and mounds of garbage.

A trail of bright orange needle caps marks the path from the street to the property, modern-day Hansel and Gretel breadcrumbs leading home. The plywood that police placed over the back door a few weeks ago has been removed. Blankets and a plastic shower curtain block the back windows — a sure sign, police say, that somebody has taken up residence in this abandoned house.

The house is one of 430 abandoned "zombie houses" on Portland's east side, often left vacant for years. A blight on neighborhoods and a potential public safety danger as squatters come and go, they sit empty while the city suffers from a major housing shortage.

Just a couple of weeks earlier, police found a collection of people in the Powell Boulevard house and kicked them out, before screwing down sheets of plywood that are now propped up, useless, against the side of the house. Clearly, squatters have returned.

That's only a little surprising to Rob Brown and his partner, Joe Young. Three or four times a week, Brown, Young and two other officers in the police Neighborhood Response Team say they visit a home boarded up by police order, only to find the boards removed, the order ignored.

The weather is finally warming, so the homeless aren't as desperate for indoor shelter, Brown notes.

"We're kind of at the end of the squatter house season," he says.

Brown and his fellow East Precinct Neighborhood Response Team officers have a list of abandoned homes like this one that they have been called to check up on. Most are in perfectly respectable neighborhoods, with perfectly respectable neighbors upset and outraged at what is happening on their blocks.

At the same time, Portland is experiencing an unprecedented housing crisis — there simply aren't enough houses and apartments to shelter people with modest incomes here. The house on Powell Boulevard, like some of the abandoned homes routinely monitored by the Neighborhood Response Team, actually sits on a large piece of land — enough property for a small apartment complex or a collection of row houses.

Portland less proactive

There are cities in this country where abandoned houses are not left to rot, where the fear of blighted neighborhoods is ingrained enough that city officials use delinquent taxes, code violations and police call-outs to foreclose and turn properties over to developers who promise to build affordable housing. Or they force the homes into receivership, to ensure the properties get fixed up quickly and owners either pay for the repairs or lose their properties.

Many of these cities — Detroit is an example, Memphis is another — have thousands of abandoned homes, because property values nosedived along with their economies. Banks have foreclosed and nobody wants the homes.

But in Portland, property values are soaring everywhere. Each one of these 430 homes has significant value.

The Powell Boulevard house, like almost all the abandoned houses on the police list, has liens on it as a result of zoning code violations. Like most on the list, it has been abandoned for years. Brown says he can't figure out why the city can't use those liens to foreclose on the houses and sell them to somebody who will fix them up, or knock them down and build something new.

"That's the big missing piece," he says. "Why don't we do that?"

Owner permission required

The city of Portland has not foreclosed on a home since 1965, officials say. National experts say the first step in large-scale foreclosure actions is having a title investigator determine who legally owns each abandoned property. But the legal owners of most of Portland's abandoned homes are unknown.

In Portland, police officers say they have become de facto investigators of these properties. Often they visit an abandoned home after a neighbor has registered a complaint. Even if they see evidence that squatters are inside, police can't enter the home unless they have permission from the owners.

Often, Brown and Young find themselves outside, typing away at their squad car computer, trying to find out who owns a property so they can call and get permission to enter and remove squatters.

Sometimes they find banks own the properties, and banks, Brown says, "are very unhelpful." Often one bank official insists another is the one to contact. Sometimes, police find a property has been foreclosed upon, but is still legally in the hands of the original property owner, which can only make matters worse.

"That's the problem we have," Brown says. "The owner of record says, 'I want nothing to do with it.' They just want the bank to take it back."

But that's not about to happen with this property any time soon. After a previous visit, the officers had traced ownership to a bank and received permission to enter. The first floor has them holding the backs of their hands over mouths and noses.

"Police. If there's anyone in here come out now," Brown shouts toward the home's second floor. No answer. Flashlights in hand, they head up the stairs.

Outdated ordinance

City ordinance 5.30.20, which critics say is anachronistic, has the city's hands tied. The ordinance governs how the city can dispose of an abandoned property on which it has foreclosed. In theory, the city could place liens on a house, and then foreclose if they remain unpaid. The city then could sell that house to an individual or developer who will fix it up, or possibly knock it down and build new housing. In some cities, such buildings are sold to nonprofit community development corporations, which agree to turn the property into low-income housing.

Let's say that Powell Boulvard house and property are assessed at $300,000, and the outstanding liens total $20,000. In theory, the city should be able to sell that property for $280,000. Given today's hot real estate market and the shortage of developable property, the city might get even more.

But 5.30.20, on the books since 2003, says no. According to city code, the city cannot sell a foreclosed property for more than the amount of the liens — $20,000 in this case.

Ordinance 5.30.20 is one of a number of reasons Portland city government has failed for decades to address a critical problem, though the solution could substantially improve the city in a number of ways.

"It's like a trip down the rabbit hole," says Zach Klonoski, policy adviser to Mayor Charlie Hales, of the byzantine and outdated ordinances and procedures set up for dealing with foreclosures.

Hales says foreclosing on long-abandoned homes needs to be a city priority. His recently released city budget proposal includes a new position in the city attorney's office to handle foreclosures and receiverships of abandoned homes.

It also includes a budget cut for the city auditor's office, which oversees foreclosures. Those two facts may not be unrelated, say City Hall insiders.

Ordinance 5.30.20 was written to remove financial incentives for the city to become too cavalier about foreclosing on the homes of its residents, city officials say. Other city ordinances make it difficult for officials from different bureaus to work together to deal with abandoned properties. A number of city policies in recent decades stem from a similar philosophy — preventing foreclosures rather than pursuing them.

Meanwhile, in a city already short of police officers, Neighborhood Reponse Team officers Brown and Jones spend much of their time driving around the east side, checking up on the 430 properties on their abandoned house list.

Identifying owners often a tricky task

Step one in dealing with an abandoned home is finding out who owns it. But even that first step can be daunting, experts say, and enough to stop the foreclosure process before it has even begun.

Most of Portland's abandoned homes are owned by banks or financial institutions, and the systems they use for managing the properties lend themselves to hiding ownership. Often the banks prefer it that way.

For the city, it is so difficult to figure out ownership that the worst cases often get reshuffled into the deck.

All this can be traced back to mortgage practices that sparked the Great Recession, when the constant buying and selling of mortgages muddied the water of ownership. During the crisis' peak, a property could have been sold three or four times, often involving a buyer located overseas.

And it's not easy to trace the route the property took. The primary source of information is the county's recording agency, but many financial institutions do not record the change in ownership after foreclosing. So the former owner's name stays on the records.

"They have so many means to hide," says city of Portland Foreclosure Manager Marco Maciel. "When you dig deeper, they have already sold multiple times."

Think about it this way — Bank A could purchase a mortgage and begin to foreclose, selling it to Bank B in the middle of the process. Bank B might never finish the foreclosure process or have no idea there was even one pending. The person who left town five years ago, thinking their home had been foreclosed, may still be the listed owner.

Financial institutions also employ separate companies that manage the properties. These companies monitor delinquencies, restructure debt and execute foreclosures if necessary. But they also obscure property ownership.

"From the moment the servicing organization is assigned, the mortgagee's name virtually disappears," Maciel says.

Often, when city officials speak with the owner of a vacant home, they find two things. Either the listed homeowner has left the area after being threatened with foreclosure, or the official has to go through a servicing organization. Neither instance is conducive to quick and easy solutions.

"It's a way for the banks to legally avoid any consequence of being the legal owner," says Zach Klonoski, Mayor Charlie Hales' policy adviser. "We need to figure out a way to give the (city ordinances) teeth and actually hit the banks in the pocketbook, rather than the property owner who has taken off."

Some of these financial institutions appear to have little interest in keeping up abandoned homes. "Flippers," who buy a property and quickly try to sell it for a higher price, will purchase a package of 30 to 40 properties, including three or four that are vacant. They might rehab the good houses and resell them, letting the bad apples sit there and rot, industry analysts say, because it's easier for them to just write-off the worst homes.

Trying to figure all of this out boils down to time and effort the city doesn't want to waste.

The mayor's office has pulled together a list of 32 priority properties highlighted as the most important to address. The properties are spread across Portland, but the city only knows who owns seven of them. For the rest, the ownership designation is unknown.

"Every municipality faces these problems because they don't do a good job conveying ownership," Maciel says. "You have to find a way to go after who is behind this."

Almost any property will sell in local market

How hot is the Portland housing market? So hot that even one of the worst abandoned homes in the city — neglected, damaged by fire inside and out, with $80,000 in unpaid liens — recently sold for nearly twice its asking price. Oh, and it also has been described by Portland police as "a rolling dope house" and the scene of a homicide.

City officials last month put the house at 14630 S.E. Caruthers St. on a list of candidates for foreclosure. But they were unable to determine precisely who has owned the property for the past five years. Documents appeared to show that at some recent point Wells Fargo bank became the owner.

A few weeks ago, the bank decided to list the property for $69,000. City officials hoped someone would repair the building and remove it as an attractive home for squatters. Within a week, the bank had 30 offers come in for the house. It was sold for $130,000 cash. The new owner has agreed to an expedited timeline for needed repairs that prompted the nuisance violations resulting in the liens.

The moral of the story, according to Mike Liefeld, enforcement program manager with the Portland Bureau of Development Services, is that most of Portland's so-called "zombie homes" can be turned around.

"It was a shocker," Liefeld says of the sale. "We can get some of these properties cured if we can exercise some of our authorities."

Identifying owners often a tricky task

Step one in dealing with an abandoned home is finding out who owns it. But even that first step can be daunting, experts say, and enough to stop the foreclosure process before it has even begun.

Most of Portland's abandoned homes are owned by banks or financial institutions, and the systems they use for managing the properties lend themselves to hiding ownership. Often the banks prefer it that way.

For the city, it is so difficult to figure out ownership that the worst cases often get reshuffled into the deck.

All this can be traced back to mortgage practices that sparked the Great Recession, when the constant buying and selling of mortgages muddied the water of ownership. During the crisis' peak, a property could have been sold three or four times, often involving a buyer located overseas.

And it's not easy to trace the route the property took. The primary source of information is the county's recording agency, but many financial institutions do not record the change in ownership after foreclosing. So the former owner's name stays on the records.

"They have so many means to hide," says city of Portland Foreclosure Manager Marco Maciel. "When you dig deeper, they have already sold multiple times."

Think about it this way — Bank A could purchase a mortgage and begin to foreclose, selling it to Bank B in the middle of the process. Bank B might never finish the foreclosure process or have no idea there was even one pending. The person who left town five years ago, thinking their home had been foreclosed, may still be the listed owner.

Financial institutions also employ separate companies that manage the properties. These companies monitor delinquencies, restructure debt and execute foreclosures if necessary. But they also obscure property ownership.

"From the moment the servicing organization is assigned, the mortgagee's name virtually disappears," Maciel says.

Often, when city officials speak with the owner of a vacant home, they find two things. Either the listed homeowner has left the area after being threatened with foreclosure, or the official has to go through a servicing organization. Neither instance is conducive to quick and easy solutions.

"It's a way for the banks to legally avoid any consequence of being the legal owner," says Zach Klonoski, Mayor Charlie Hales' policy adviser. "We need to figure out a way to give the (city ordinances) teeth and actually hit the banks in the pocketbook, rather than the property owner who has taken off."

Some of these financial institutions appear to have little interest in keeping up abandoned homes. "Flippers," who buy a property and quickly try to sell it for a higher price, will purchase a package of 30 to 40 properties, including three or four that are vacant. They might rehab the good houses and resell them, letting the bad apples sit there and rot, industry analysts say, because it's easier for them to just write-off the worst homes.

Trying to figure all of this out boils down to time and effort the city doesn't want to waste.

The Mayor's Office has pulled together a list of 32 priority properties highlighted as the most important to address. The properties are spread across Portland, but the city only knows who owns seven of them. For the rest, the ownership designation is unknown.

"Every municipality faces these problems because they don't do a good job conveying ownership," Maciel says. "You have to find a way to go after who is behind this."

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@chriskeizur

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