Foreclosures and the courts: The hidden costs


Much has been written about the mortgage foreclosure problem and its devastating effect on the economy. What has been less well-publicized is the dramatic effect this problem has had on tenants, neighborhoods, the courts and society as a whole.

In the 4th Judicial District serving Hennepin County, cases involving tenant and landlord issues are handled in a specialty court called Housing Court. Filings for Hennepin County Housing Court jumped nearly 10 percent from 2004 to 2006.

In the first seven months of this year, 6,248 cases were filed, an 8 percent increase over the first seven months of last year. More than a 1,000 cases were filed in the month of July alone, the largest single-month filing in at least the last seven years.

A case handled by Referee Mark Labine, who presides over the Hennepin County Housing Court, helps illustrate the stories behind those numbers. A family rented a home in Minneapolis owned by a company called Dream Homes Development. Unfortunately, the home at issue was anything but a dream home. In fact, the landlord, who was in foreclosure, failed to pay the gas bill, and in spite of being ordered to do so by Referee Labine, still didn’t pay. As a result, the family living in the home went for 19 days in June without gas service. It took being threatened with a jail sentence for Dream Homes to finally pay the gas bill.

The sudden increase in Housing Court filings corresponds with the rapid rise in foreclosures in Hennepin County. Foreclosures were relatively stable in the years 2001 through 2004 at about 1,000 foreclosed properties per year. In 2005, foreclosures jumped to 1,700 properties, and in 2006 the number of foreclosures skyrocketed to 3,100 properties.

In the first six months of 2007, there have been 2,521 foreclosed properties in Hennepin County, nearly twice as many as the same time period the previous year. If filings in the second half of the year are consistent with the first half, we could see more than 5,000 foreclosures this year in Hennepin County alone.

Eric Stein of the Center for Responsible Lending has predicted that as many as 20 percent of all loans made to families in Minneapolis and St. Paul last year will be lost to foreclosure. Stein places much of the blame on subprime mortgages, which are high-interest loans targeted toward people with shaky credit. These loans typically carry hidden fees and have adjustable rates. Stein refers to these loans as “exploding ARMS.”

One of the hidden problems that foreclosures create is a six-month period in which the ownership and control of the leased property is in “limbo.” This is the time between the sheriff’s sale and the end of the six-month redemption period. During this period, the bank owns the property, subject to the right of the landlord or owner to redeem it. If market conditions are good, landlords have six months to try to sell the property and save whatever equity they have.

However, if market conditions are poor, landlords often lose incentive to take care of leased properties and will simply try to collect rents. That may lead to property repairs left undone, utilities left unpaid, tenants being allowed to do anything they want, and lack of control by the courts to enforce building codes and ordinances.

For the 4th Judicial District, the increase in Housing Court filings has meant we have had to realign resources, adding additional Housing Court calendars to handle the increased case load. The impacts on people attending Housing Court include fewer options for hearing dates and full calendars meaning longer waits in court.

The Housing Court Bench and Bar Committee has begun inviting community members involved in the mortgage foreclosure process to discuss its impact on Housing Court and Hennepin County. One of the issues under consideration will be possible legislative changes that would help address the problems created by the “limbo” period during home foreclosures. Meanwhile, the courts will do its best to continue to provide the best possible service to Hennepin County citizens, while working with other community members on solutions to mitigate the impacts on everyone.

Lucy Wieland is chief judge of the 4th Judicial District.