Foreclosure nearby? It's your problem

By Liz Pulliam Weston

If you're not struggling to pay a mortgage, you may think the foreclosure crisis has nothing to do with you.

You're probably wrong.

As millions of Americans lose their homes, many of our neighborhoods will change, and not for the better. Areas where the foreclosure tsunami has already come ashore show us what's in store:

• Vagrants, drug dealers and prostitutes have taken over abandoned houses in a middle-class Atlanta neighborhood.

• In Cleveland, among other hard-hit cities, vandals are stripping copper wiring, copper plumbing and even aluminum siding from abandoned homes, leaving uninhabitable eyesores behind.

• In suburban Elk Grove, Calif., broken windows and weedy lawns are just the start of the problem. Inner-city plagues including gangs, drugs and graffiti have invaded newly built developments as landlords accept any renters they can get.

"Landlords are taking Section 8 people, people on government assistance, and moving them into 4,000-square-foot houses with five bedrooms and three bathrooms," said Steve Steele, the pastor of Oak Tree Community Church in Elk Grove. In many cases, Steele said, neither the landlords nor the new tenants have maintained the properties, which once sold for $500,000 or more.

Gang activity and crime have spiked, residents say, as foreclosures have increased in the community.

There goes the neighborhood

Increased crime and foreclosures appear to go hand in hand (.pdf file). Each 1% increase in foreclosures, according to Dan Immergluck of Georgia Tech and Geoff Smith of the Woodstock Institute, is associated with a 2.23% rise in violent crime.

Cleveland's Slavic Village experienced such a transformation a decade ago, when a spate of foreclosures from high-cost loans turned the once-tidy, middle-class neighborhood into streets of eyesores.

"People would look at the (stripped and abandoned) houses and say, 'Nobody cares about this neighborhood,'" said Barbara Anderson, a longtime resident of Slavic Village who is now head of a club dedicated to the area's refurbishment. "'We can use these houses and sell drugs out of them, and nobody will care.' And the neighborhood begins to crumble."

• Talk back: Have you felt the effects of the wave of foreclosures?

As quality of life erodes, so do home prices. Even in areas that fend off vandals and criminals, the fire-sale prices lenders slap on foreclosed houses put further downward pressure on home values.

1 foreclosure bruises many

About 3% of all homeowners are expected to enter the foreclosure process by the end of 2009, according to a new report by The Pew Charitable Trusts. That's bad enough, but a whopping 43.5% of homeowners will feel the ripple effects.

The report estimates 40 million U.S. households will see their home values plummet by $356 billion in the next two years because of nearby foreclosures. That's a per-household loss of wealth of $8,771.

• Video: Foreclosed owners trashing their homes

The fallout is even worse in many states:

• In Nevada, where one out of 11 homeowners will likely enter foreclosure, 77% of homeowners will feel the after-effects, losing an average $11,730 of home value.

• In Arizona, one out of 18 will enter foreclosure, while 63% of homeowners will lose an average $7,231.

• In California, one in 20 homeowners will enter foreclosure, and 64% of homeowners will face an average $14,282 loss.

• In New York, 1 in 32 homeowners will enter foreclosure, about the same as the national average. Yet 52% of homeowners will feel ripple effects by losing an average $18,334 in home value.

This toll, by the way, is independent of the loss in home values that will come as the result of the real-estate bubble bursting and the credit crunch. It also doesn't count the indirect cost of cities, counties and states losing the tax revenue on that $356 billion of vanished wealth.

Continued: 'This is a disaster'

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