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Originally published February 11, 2012 at 8:05 PM | Page modified February 13, 2012 at 11:03 AM

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Empty, foreclosed houses burden cities, neighborhoods

Abandoned or bank-owned houses pose growing problems for neighbors and officials in Washington cities hit hardest by the foreclosure crisis.

Seattle Times staff reporter

South King County plagued by foreclosures (PDF)

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On a Monday morning last October, Covington police knocked on the door of a house in foreclosure. They got no response.

Inside, police counted five teenage squatters, two wanted on outstanding warrants. They found broken furniture, stained carpets and rotting garbage. Upstairs there were many empty bottles of cough syrup that police say the squatters drank to get high.

"It was an absolute pigsty," Police Chief Kevin Klason said about the house in Covington's Crofton Hills development. "They were still using the toilet even though it would not flush."

The house, now owned by mortgage giant Freddie Mac, is part of a vast inventory of foreclosures in South King County.

The growing number of distressed or abandoned homes in such areas is a burden — often invisible — for neighbors, municipalities and taxpayers.

Foreclosure sales helped drive the median home price in Covington down 18 percent last year to $230,250, making houses more affordable to new buyers but hammering the value of other homeowners' investments.

Previously the fastest-growing city in King County, Covington fell hard when the bubble burst. Its monthly building-permit revenue plunged from a peak of $6 million in 2007 to $715,000 in 2009.

Now, about one in every 48 residential parcels in Covington is owned by a financial institution, the highest rate in King County and more than three times the average, according to an analysis by the Assessor's Office. Rates are also high around Seattle-Tacoma International Airport and near the Pierce County line.

The rash of foreclosures has cash-strapped city officials struggling with safety and legal issues of abandoned homes. Homeowners associations that handle landscaping and other amenities sometimes face bankruptcy as owners of houses or condos in foreclosure stop paying dues.

And taxpayers, directly and indirectly, end up paying: Municipalities raise tax rates to make up for lower property values. In homes that revert to government-backed mortgage entities such as Freddie Mac, these institutions cover the cost of replacing missing appliances and maintaining the residences until they're sold.

The foreclosure process routinely takes a year to 18 months to complete, experts say. During that period, code-enforcement officers can't enter an abandoned property without the owner's consent, unless the structure poses an imminent danger to public health or safety.

Code-enforcement officers say they struggle to find someone to take responsibility for the property in a chain of players that includes the foreclosure trustee, the mortgage servicer and, in many cases, a field-inspection firm.

"It's risen to be one of our top issues statewide," said Everett code-enforcement supervisor Kevin Fagerstrom, who hears the grumbling from his peers as a board member of a state association of code-enforcement officers.

Everett has dozens of code-enforcement cases against abandoned foreclosed houses, Fagerstrom said, including some heavily damaged by fires set by squatters.

Many homeowners associations are facing the highest rates ever of delinquent dues, and a few have filed for bankruptcy, said Valerie Oman, a Seattle attorney at Condominium Law Group.

"Nine times out of ten when someone is losing their home, they stop paying their dues," Oman said.

That means everyone else's dues go up to cover losses. And if the delinquency rate in a development gets too high, many potential homebuyers are unable to obtain financing.

While foreclosures aren't rampant in Crofton Hills, the homeowners association also has been affected by residents' job losses. More than 15 percent of owners owe the association money, and a few have filed for bankruptcy.

Foreclosures can be costly for cities, too.

"A single mortgage failure, especially one that leaves the home vacant and unsecured, can impose tens of thousands of dollars of costs on cash-strapped public agencies," according to a 2005 report by Harvard University's Joint Center on Housing Studies.

Nevada, the nation's hardest-hit state in the housing collapse, has three times King County's rate of bank-owned homes, according to RealtyTrac.

Here the impact is more localized, and it's the areas built up during the last boom that tend to be most affected.

Real-estate agents say banks are pushing home values down and increasing the risk of more defaults by selling foreclosed properties at big discounts.

At Rainier Vista, a large Covington development built during the boom, a credit union foreclosed three years ago on 11 lots and seven homes — but has been able to sell only five of the 18 properties.

"We need bank-owned property to disappear to get back to a normal market," said real-estate broker Tom Tollen.

A home adrift

The trouble in Crofton Hills started last July.

"You'd come home and find them (squatters) throwing things out of the second-floor window," said John "J.D." Wilson, who lives next to the house.

When Wilson and his wife, Mia, moved here in 2003, Crofton Hills was brand-new, a quaint, middle-class suburb built next to a cow pasture. The place felt safe, and on clear days the view of Mount Rainier was breathtaking.

But with the disruption next door, the couple couldn't sleep. They'd hear loud parties until 3 a.m. Wilson saw one squatter burning furniture on the back patio. Strangers took away the stove and other appliances.

One day, Wilson was out walking his rat terrier, Zinnia.

"One of them walks up to me and says, 'I'd like to barbecue your dog.' "

Wilson went to Covington City Hall in early September, but a police officer told him the city couldn't do anything about the squatters unless the home's owner filed a complaint. The Crofton Hills Homeowners' Association had already filed a lien against the house's owner for tens of thousands of dollars in unpaid dues.

"There was shrink wrap all over the place, crap all over the yard, broken glass," recalls Jay Neff, the association's treasurer. "It was a mess."

No simple solution

Ordinarily, to force out squatters, the city would have asked the home's owner to sign a no-trespass order. But in this case, the owner had moved to another state — and one of the squatters was her 18-year-old son. The owner declined to comment.

As the pleasant, two-story gray home became a flophouse, the homeowners association and the city of Covington were hamstrung for weeks by due-process requirements intended to protect distressed owners who still occupy their homes.

"I think probably every city has dealt with this," said Brian Bykonen, the city's only code-enforcement officer, who works part time. "It's something that's happening all over the United States."

When Wilson filed a written complaint in late September, Bykonen was juggling about 40 other code-enforcement cases, including houses in foreclosure. Overgrown yards. Illegal dumping. Simpler stuff.

Because he couldn't reach the owner, Bykonen reached out to the foreclosure trustee and then the mortgage servicer, Bank of America, aiming to get a no-trespass form signed and new locks on the house. He corresponded with an out-of-state Bank of America representative employed by a temp agency.

"Most times when I have to contact somebody, they're in Texas, Florida or someplace else," Bykonen said. "They don't know about Covington, Washington. It's just another house or property to them."

The local utility shut off the home's water Sept. 21. On Oct. 3, police moved in and removed the squatters — along with five cats.

Not that easy

That wasn't the end of it: The house was broken into again and again at night — with the squatters gone by day. Bykonen again asked the bank to secure the house, but the bank said its inspectors had been to the house and reported it "occupied."

"I understand the frustration ... we are unable to do any work while the property is occupied," the Bank of America representative wrote Oct. 17.

The representative said she put in an order for the locks to be changed in two weeks, if no one was in the house.

On Oct. 28, police removed a blue-haired squatter carrying a Bowie knife with a 12-inch blade. The same day, Bykonen condemned the house as unfit for occupancy, posting red signs on all its doors.

An agent for Bank of America — which says it inspects more than 1 million properties a month — secured the house Nov. 4.

Later that month, Bank of America's property manager sent someone in an old black SUV to the house to start cleaning up the mess inside. The bank apparently didn't alert the homeowners association, which freaked out and called police again.

Fagerstrom, Everett's code-enforcement supervisor, said out-of-state banks generally have not been very responsive to city requests to keep foreclosed houses secured and well-maintained.

"These organizations are so huge that opening efficient communication with a particular person is sometimes difficult," he said.

Back on the market

Now Freddie Mac owns the Crofton Hills house. After nobody bid at a foreclosure auction in December, the house went back to Freddie, also known as the Federal Home Loan Mortgage Corp., which owned the $306,500 mortgage.

At the end of September, Freddie Mac owned more than 59,600 homes nationwide. The mortgage giant and its cousin Fannie Mae both were taken over by the federal government in 2008 due to growing losses on mortgages the two government-sponsored companies backed.

Carol Wright, the real-estate broker assigned the Crofton Hills house, said she typically puts upward of $25,000 into repairs to get a Freddie Mac home ready for sale. Freddie Mac authorizes and pays for such repairs to help get the maximum price for the houses.

Wright said new homes going up in Covington don't help: The city approved permits for 84 new homes in the past two years.

"I wish municipalities would say, 'We won't give you more permits,' " she said. "Slow down the new construction. It's all supply and demand."

Neighbors like Wilson are anxious to see the former flophouse occupied by a new owner, or even a responsible tenant. He said he also feels sad for the teenage squatters and wonders what's become of them.

"Who knows? Maybe they're living at some other abandoned house."

Seattle Times researcher David Turim contributed to this report.

Sanjay Bhatt: 206-464-3103 or sbhatt@seattletimes.com

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