MAY 1, 2009

Banker: 'What'd I Do Wrong, Officer?' Cop: 'You've Got Algae in the 
Pool, Sir'
Fearing Blight, a California Town Makes It a Crime to Neglect Foreclosed 
Homes

By NICHOLAS CASEY
Wall Street Journal

http://online.wsj.com/article/SB124112509277274533.html


INDIO, Calif. -- Officials at a Citigroup Inc. office in St. Louis 
placed a call to this desert town recently. The bank had caught word 
that Indio was coming after the lending giant with fines and threats of 
criminal charges. The offense: an algae-infested swimming pool at 79760 
Eagle Bend Court.

Citigroup wound up in charge of the foreclosed home, one of thousands of 
such properties it was managing across the country. But last year, Indio 
passed a law that allowed it to charge banks with a criminal misdemeanor 
if they allowed a home to fall into disrepair.

"If I need to do it, I'll say, 'Mr. Bank President, if you don't come 
and take care of your property, we're going to come arrest you and take 
you to court in California,'" says Brad Ramos, Indio's long-serving 
police chief.

The hard-line approach is part of this town's attempt to gain leverage 
over some of the nation's largest lenders. A couple of years ago, Indio 
was a real-estate bonanza. Old date farms were closing down, sprouting 
subdivisions in their places. Today it's a different scene with one in 
10 houses either in default or foreclosure.

The upshot is that faraway banks have become the de facto landlords of 
Indio, and people here say the absentee lenders are letting the whole 
valley fall apart. Houses "look like dust bowls," says Gene Gilbert, the 
mayor pro tem, who thinks a glut of run-down homes may depress his 
hometown's local market long after the recession ends.

Criminalizing things like algae in a pool has given Mr. Ramos a stick to 
make lenders snap to attention. Without that threat, the police chief 
says, "far-off banks, billion-dollar corporations, they could simply 
ignore us."

A Citigroup spokesman says the bank never meant to ignore Indio and all 
along had "tried to maintain the property in good condition." After the 
letters from Indio, Citigroup paid a $3,450 fine to Indio and sent a 
cleaning crew to fix the pool at Eagle Bend Court where Citigroup had 
managed the foreclosure process.

Mr. Ramos has organized his department to focus on this new type of 
crime. Uniformed officers make weekly sweeps through subdivisions, 
casting about for infractions like dead landscaping. Financial 
institutions from Seattle to New York are finding themselves providing 
new services that include pruning bushes and watering cactuses.

On Austin Drive, J.P. Morgan Chase & Co.'s Washington Mutual bank had a 
real-estate agent water some dead grass after receiving a warning from 
Indio. On Palm View Street, Fannie Mae spent $7,000 to remove a fallen 
tree and took care of a few broken windows. Indio says it's still 
pursuing Bank of New York Mellon Corp., the trustee of a property on 
Avenida Linda Vista where weeds were "four to five feet tall."

Lenders say that such repairs and upkeep are part of the normal course 
of business, and that Indio's ordinance hasn't prompted any special 
actions. A Washington Mutual spokesman said local real-estate agents 
send in photos of bank-owned properties so the lender can watch for 
disrepair from afar. A Fannie Mae spokeswoman said the lender's first 
goal is to "stabilize neighborhoods." New York Mellon said its role as 
trustee didn't merit citations from Indio.

Even before the mortgage crisis erupted in full, big cities like 
Cleveland and Buffalo had fashioned laws of their own to browbeat banks 
into taking care of urban blight. Now some small towns are also taking 
matters into their own hands.

Indio's neighbors Palm Springs, Desert Hot Springs and Cathedral City 
each pushed ahead with laws much like Indio's. The town's own ordinance 
was fashioned off a 2007 law from Chula Vista, a city south of San Diego 
which began fining lenders up to $1,000 a day for unsightly or dangerous 
code violations such as broken windows.

"These lenders speak one language -- money," says Doug Leeper, the Chula 
Vista code-enforcement manager, who says he has issued around $1.4 
million in fines against lenders. So far, he's collected half the fines 
and has plans to wrangle the rest through tax liens when the homes are 
eventually resold.

Indio's gruff Mr. Ramos, however, is pushing it beyond tax liens, 
equating the matter to "arresting the guy that robs a bank." Any softer 
approach would put the city's home prices in further free fall, he says.

A former railroad pit stop, Indio was founded a century ago deep in the 
Mojave Desert's Coachella Valley. For decades, it scraped by as the 
"Date Capital of the World." But about 10 years ago, life began to change.

The booming Los Angeles housing market -- centered more than 100 miles 
away -- expanded to claim the Coachella Valley as its eastern frontier. 
Indio's population, about 49,000 in the 2000 census, swelled to an 
estimated 81,000 today. A new land rush was on.

Longtime residents worried that the boom times wouldn't last. Mr. Ramos 
recalls looking at a map of developments pouring across old date fields 
and thinking: "I know our median income. Who is keeping up with the 
payments?"

By last year, some of the city's new developments were turning into 
pockets of decay and neglect. Million-dollar homes were being stripped 
of metal. New houses in gated communities became the domain of squatters.

In March of last year, Mr. Gilbert penned a new law requiring banks to 
register homes the moment they went into foreclosure so the city could 
monitor if they were being maintained. Fines could pile up past $25,000 
if the properties were found to be in disrepair. In a bold move that 
took its measures beyond mere civil offense, failure to comply was 
deemed a criminal misdemeanor that could lead to an arrest.

City officials say they ginned up a campaign to notify the banks about 
the new law, but few took action. "The banks were trying to test us to 
see if we were serious about this," says Jason Anderson, a 
code-enforcement officer in Indio.

Countrywide, one of the biggest lenders in the area, initially just 
tried to make the problem go away by writing checks, say city officials. 
Instead of attending to the upkeep on the properties, they'd ask, "How 
big was the fine?" Mr. Anderson recalls.

City officials say Countrywide has since become one of the most 
proactive lenders, contracting local real-estate agents to monitor 
properties and paying for gardeners to handle the upkeep. "There's 
considerable financial incentive for the bank" to maintain properties, a 
Countrywide spokesman said.

-- 
================================
George Antunes, Political Science Dept
University of Houston; Houston, TX 77204 
Voice: 713-743-3923  Fax: 713-743-3927
Mail: antunes at uh dot edu

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