[Update 1: Clarifies location of speech] Elizabeth Duke, a governor on the board of the Federal Reserve System, speaking at the Community Stabilization Symposium in National Harbor, Md., said recent increases in foreclosures only “exacerbated a pre-existing vacancy problems” in certain cities. “In the most devastated neighborhoods, some lenders do not even complete the foreclosure process or record the outcome of foreclosure sales because the cost of foreclosing exceeds the value of the property,” Duke said. These “toxic titles,” she added, have placed a large number of properties in legal limbo. High rates of abandonment pushed many cities such as Flint, Mich. and Cleveland to pursue plans to “right size” by demolishing vacant properties and create land banks, Duke said. High foreclosure rates have spread into once economically vibrant coastal cities with jobs and growing populations, she said. “Vacant properties are creating a different kind of problem in some California markets. Indeed, as investors sense that home prices have bottomed out, they are approaching servicers with cash offers for the bulk purchase of properties,” Duke said. “In fact, community organizations in areas of California complain that investor interest has heated up to the point that qualified first-time homebuyers and local community organizations are being crowded out of the market.” But there are some examples of investors making money while benefitting the community. Duke was introduced to Lone Star Investment Advisors, a private equity firm based in Dallas that invests in low-to moderate-income areas in Texas. Their private equity fund invests in Texas companies located in or willing to move to low-income areas, according to Duke. “The fund’s managers have focused on manufacturing and distribution companies that are valued at $20m and up and can create jobs in the state’s lower-income communities,” she said. “Its double bottom-line approach to investments–making a profit while benefitting the community–makes it attractive to bankers with Community Reinvestment Act (CRA) obligations as well as other socially-minded investors.” The Federal Reserve System will also provide assistance to neighborhood stabilization efforts. The Community Affairs staff, chaired by Duke, will provide data analysis and technical assistance to state and local governments trying to solve the foreclosure problem in their communities. Duke said that the Federal Reserve banks of Cleveland, Richmond and Atlanta are collaborating on a series of capacity-building sessions for several communities in Appalachia to help them leverage federal Neighborhood Stabilization funds. “In addition, we are studying the Neighborhood Stabilization Program and interviewing some 50 program grantees nationwide to learn about the early successes and challenges to this effort to restore health to communities with high foreclosure rates,” Duke said. Write to Jon Prior.