Researchers at the Federal Reserve Bank of Cleveland say that their findings show that fast-tracking foreclosures on vacant properties in states that handle foreclosures through the courts could result in substantial cost savings.
Cleveland Fed researchers Kyle Fee and Thomas J. Fitzpatrick estimate that the savings in two judicial foreclosure states – Ohio and Pennsylvania -- would be at least $24 million annually. However, so-called "rocket docket" systems, such as the one in use in Florida, draw a fair share of criticism.
“The savings would come from shortening the amount of time vacant properties spend in foreclosure and reducing the deadweight losses – costs without corresponding benefits – that lenders and communities suffer,” the researchers said. “States that require that foreclosures be conducted through the courts have decided that protecting the rights of property owners is worth the higher cost of judicial foreclosure relative to nonjudicial foreclosure.”
When a foreclosure sits vacant, there are additional costs to the creditor or taxing authority due to the accelerated depreciation of unoccupied homes, which are less well maintained and more likely to be vandalized, rocket docket supporters say.
And, they note, there are also additional costs to the community when unoccupied homes create health and safety hazards and cause surrounding homes to lose value. Importantly, when the home is vacant these costs benefit no one.
Fee and Fitzpatrick say these deadweight losses are what legislatures in some judicial foreclosure states have attempted to address by creating foreclosure fast-tracks.
“Ohio, for example, created a private mortgage foreclosure fast-track for tax foreclosure in 2006, and the Ohio legislature is considering a pilot foreclosure fast-track for properties abandoned by the homeowner,” the two said.
Fee and Fitzpatrick caution that crafting legislation that balances the interests of creditors and homeowners is no simple task and will likely require the input of creditors, attorneys, communities, and the judiciary.