Banks Cash in on Foreclosures in Providence
Wednesday, November 30, 2011
Banks and other lenders have saved hundreds of thousands of dollars on foreclosed homes in Providence, thanks to tax breaks that were intended to help homeowners, according to data obtained by GoLocalProv.
This year, 44 banks and other companies have foreclosed on just over 341 properties in Providence, as of September. But those banks retained owner-occupied homestead exemptions on about 200 of those properties. In all, the exemptions—some as high as 50 percent—saved those banks about $422,615 on their 2011 tax bills, a GoLocalProv review of city data found. (See below chart for the complete breakdown.)
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTTo Brenda Clement, executive director of the Housing Action Coalition of Rhode Island, the exemptions were blatantly unfair: “You shouldn’t be getting an exemption if you’re not a homeowner,” she told GoLocalProv.
Six figure savings for big banks
Those banks that racked up the most savings in exemptions are some of the biggest names in the mortgage industry. Topping the list were Fannie Mae and Freddie Mac, two mortgage giants that are government-sponsored companies. Fannie Mae got a $121,722 in tax breaks on 61 properties it had foreclosed as of this month. Had it been billed at the full 2011 tax rate of $30.38 per $1,000 in value, the company would have owed an additional $121,000 in taxes.
Freddie Mac saw its total tax bill sawed nearly in half, owing $53,124, instead of the $101,582 it would have had to pay without the homestead exemption.
Other banks that gained the most were Deutsche Bank, Bank of America, the U.S. Bank National Association, and Wells Fargo. Those four institutions alone saved well over a total of $100,000 on their 2011 tax bills, according to the city data.
To Michael McCarthy, a member of Occupy Providence, it’s just another case of banks doing what they do best—whatever they can do to maximize profits for shareholders and investors. “They can’t be expected to use reason when they could otherwise use lawyers,” McCarthy told GoLocalProv. “I definitely don’t think the market is going to fix it for us.”
As the name suggests, the homestead exemption is meant for homeowners who live in their houses. But banks were able to collect this exemption as well if they filed a foreclosure deed after the annual December 31 property tax assessments. The exemption then was not revoked until the next annual assessment.
Taveras closes tax loophole
This practice did not come to an end until earlier this month, when Mayor Angel Taveras signed an executive order that effectively stopping it. The executive order takes effect immediately, meaning that any remaining payments on the 2011 tax bills will be recalculated to eliminate the homestead exemption.
“It’s a good thing, because now we’re looking into how unregulated these banks are and the shady things they are doing behind closed doors,” said Christopher Rotondo, an organizer for Direct Action for Rights and Equality, or DARE.
But the city estimates that it nonetheless still lost about $300,000 in revenue this year, due to the exemption.
“I think it’s a great move, and I certainly wish that we’d recognized the problem earlier,” said former Congressional candidate David Segal, who led efforts to prevent foreclosures during his time on the Providence City Council. “I think that it’s been noticed in recent years because foreclosures are up so much, and because the homes are sitting in banks’ hands for longer periods of time before resale, so it’s been costing the city more and more.”
Symptom of a broken system
Housing advocates say the situation is a symptom of the underlying causes behind the foreclosure crisis.
“I think this is another symptom of that underlying problem which is [the] unregulated market that is causing the foreclosures,” Rotondo said.
Clement said she does not believe that banks were intentionally scheming to benefit from tax breaks meant for homeowners. Instead, she says the sheer volume of foreclosures in the city—and across the country—just became overwhelming for a system that was not properly overseen or regulated. “The paperwork … and the checks and balances were just not there,” Clement said.
Homeowner advocates tell GoLocalProv that they hope eliminating the homestead exemption for banks makes them think twice before foreclosing on a home—and, perhaps consider alternatives that allow owners to stay in their homes, such as modified loans or a rental agreement.
“Obviously, that’s the biggest goal—to keep people in their home,” Clement said.
Rotondo is more skeptical about how much of a difference the executive order will make in the foreclosure crisis. “As someone who works directly with people who are affected by foreclosures, it’s … too little, too late,” Rotondo said.
Too little, too late?
He questions how effective enforcement of the order can be. Taveras has ordered the Recorder of Deeds to immediately notify the Tax Assessor when a foreclosure deed has been filed—instead of letting a full year go before the exemption is revoked. But Rotondo says banks and other institutions or investors can still delay the filing of foreclosure deeds.
He says his organization itself sometimes has a hard time finding out who the new owner of a foreclosed property is because the original lender has sold the mortgage. “It moves because of the financial market mortgages are in,” Rotondo said.
Clement, who has worked with the Taveras administration on housing issues, says she hopes the executive order is one step among many that the city takes to combat the foreclosure crisis. For one thing, she says the city should be more aggressive in code enforcement, making sure that banks and other corporate owners maintain properties that have been foreclosed.
“To the lending institution they are blips on a balance sheet,” she said.
“It’s not the bricks-and-mortar local banks that are … the problem here,” she added.
Several other communities in Rhode Island offer homestead exemptions as well. But Providence is the first community in the state to explicitly bar banks from benefiting from such exemptions, Clement said.
Editor’s Note: GoLocalProv reached out to several of the larger banks that benefited from the homestead exemptions. Spokesmen for Wells Fargo and Fannie Mae declined comment while Bank of America, Freddie Mac, and Deutsche Bank did not respond to requests for comment.
Also, another one of the companies listed, Rhode Island Housing, says it did not actually foreclose the properties. A spokeswoman told GoLocalProv that it is likely listed as the new owner because it purchases tax liens.
If you valued this article, please LIKE GoLocalProv.com on Facebook by clicking HERE.
