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While we fully support the intent of this measure as a demonstration project, we want to make it perfectly clear that we regard the only sound approach to the entire problein of low-income housing to be one which involves the entire spectrum of Government and the private sector.
Enlarging the Nation's stock of shelter units and improving its overall quality will not be successfully accomplished by devising new mortgage schemes, or new subsidies, or any other effort which fails to deal with the root cause of this problem.
The problem to be solved is not only a housing problem, it is a social problem and involves all aspects of urban life today, including employment, transportation, education, recreation, safety, sanitation and others. Certainly, housing is a part of this overall problem * * * but it is not the cause.
We commend you, Mr. Chairman, for your efforts to deal with one effect of the social deprivation to which so many of our citizens are subject, but we urge that this measure be but the first step toward a more comprehensive and integrated partnership by both Government and business to deal with the cause of the problem and not its effect.
[The attachment to Mr. Saladin's statement follows:)
SUPPLEMENT TO STATEMENT OF BARD SALADIN 1. Section 3, Paragraph (3), Subparagraph (b) defines "abandonment” relative to a non-owner occupied property. The terms “substantially reduced” and “adequate level" are used in such a manner as to be vague and subject to differing interpretations. Some effort should be made to expand on that definition so that mortgagors, as well as lenders, will have a better idea of the intent.
2. Section 6, Paragraph (B) Subparagraph (1), provides that the Corporation may have itself appointed receiver where it has probable cause to believe that a residential property is abandoned. There is no provision requiring that an owner or other party in interest be given notice of the Corporation's intent to have itself appointed receiver. The Act should provide that notice in writing be given to the owner as well as the lender and other parties in interest so as to alert those persons to their right to be heard at the receivership hearing.
3. Section 6, Paragraph (B), Subparagraph (3) provides that at the hearing on a forfeiture, the value of the interest of persons claiming an interest in the property will be determined. This section should provide that parties will be paid the value of their interest based upon the priority of their particular interest, which priority will be determined in accordance with state law and the recording statutes and laws adhered to in the particular state. Further, that same section should provide that a party with an interest in the particular property being forfeited not receive an amount less than (1) the balance of its existing encumbrance, including earned and unpaid interest, late charges, as well as accrued fees such as attorneys' fees and/or trustee's fees, if any, or (2) the value of the property as determined at the hearing on the forfeiture. Additionally, Section 6 should provide that the costs to a party in interest in appearing in the District Court, i.e., attorneys' fees and appraisal fees, may be added to the amount of the particular party's encumbrance for purposes of determining the value of their interest.
4. In order to clarify the status of a lender with regard to its relationship with the Corporation, Section 6 of the act should specifically state that when a state court appoints a receiver to manage a particular property during the pendency of the foreclosure action, the Corporation shall not seek to have itself appointed receiver and will respect the possession of the state court appointed receiver.
5. Section 6, Paragraph (b), Subparagraph (4) appears to place a duty upon a lender to protect a property; however, the scope of this duty is not adequately defined. It merely indicates that a lender will be deemed to have "failed to protect the interest of the United States if it knowingly permits the continued
deterioration of an abandoned property in which it has an interest while having the authority under law or contract to prevent such continuation". Under most deeds of trust in use in California, the beneficiary has the right to seek an injunction for waste as well as the right to seek the appointment of a state court receiver in order to gain possession of a particular property. It is very costly to take either course of action. It has certainly never been the practice of a lender to obtain the appointment of a receiver on a single-family residence or, for that matter, small multi-family residential properties, where there are insufficient rentals to be derived to make the cost justifiable. We do not believe that a lender should bear the burden of protecting a property until such time as it becomes the owner through a foreclosure proceeding. Nevertheless, if it is the decision of Congress to impose such a burden, it is essential that Section 6 (b) (4) be expanded to state the specific steps a lender or other party in interest must undertake so as not to be in violation of this act. Further, the penalties for non-compliance should be clearly specified.
Senator CRANSTON. Thank you very, very much.
STATEMENT OF DR. MARJORIE EVANS
Dr. Evans. Good morning. My name is Marjorie Evans. I am an attorney in Santa Clara County and I am speaking here this morning as an individual.
I am here because I have had a long interest in devising financially and socially sound methods for coping with the problem of housing, problems of this nature.
I was invited, I believe, because among other things, I am a consultant for the Bank of America in this particular role and have worked with these East Oakland housing committees and will continue to do so. However, the record should
be perfectly clear that I speak for myself and in no way for Bank of America.
I believe I am the pepper in the salt in this matter today. I truly believe that the abandoned housing and associated problems are severe and must have the attention of all of us. Also I should say that I appreciate the thought and concern of our Federal legislators in trying to help us out. While thanking you however I believe that we will all be better off if we have less Federal involvement in these problems than is proposed and perhaps less than we already have, and I will try to explain why, then go on to say what I think is a better way to do it.
The general thrust of this bill, of course, is to permit the foreshortening of the foreclosure and the taking possession procedures.
It seems to me from a lawyer's point of view that it is inappropriate for the Federal Government to be a residence owner or residence landlord. It tramples on the police power which in the constitution is reserved to the States. It is a matter of health and welfare.
Of course we know that for many years the Federal Government has been involved in that to some extent but in my opinion each instance ought to be examined very carefully and should not just be lightly jumped into.
Local control and decision making is absolutely necessary. Many Federal experiments in this field have been unsuccessful. Maybe sometimes one can use the word "distrust”. Why is not for us to discuss today but the fact of the matter is that those people agree that local control, local judgment is vital, absolutely vital. Moreover, in my opinion, local responsibility has got to come if we are to solve these problems and the debilitating intrusion of the Federal Government into so many aspects of this has in my opinion debilitated local, State and city governments.
There are too many Federal agents already. They are overlapping, wasteful, interfere by regulation and last of all they are indestructible. There seems to be no way to self-destruct or have Congress destroy one. I would far prefer instead of this agency, which is proposed in the bill, to have Congress to suggest rather strongly to the present Federal agencies that they get with it, start cooperating as they already are, of course, but I am trying to be very strong, start cooperating, cooperate better, let's say, more firmly with an assurance of congressional urging with the cities, with the State and with the citizens' organizations of which the East Oakland housing committee is a marvelous example and with the private lenders.
I should comment just in passing that the bill seems to extend the condemnation power and what we are calling checkerboard condemnation. Of course that is the power of government but it is one that should be lightly wielded and if it is not necessary, I don't think we should engage in it.
Finally, and my objections, it interferes with the historical State control, the State control of debtor and creditor relationships.
If we must have, and perhaps we must have some way of foreshortening the foreclosure proceedings, getting people in houses, I would prefer to see this come out from the State legislation rather than Federal legislation.
Well, that is all very well to say but what to do is another matter entirely, of course.
First of all I would like to associate myself with the analysis, though not necessarily with the recommendations, of Mr. Ilgin who obviously knows what he is talking about. He's clearly been in there fighting the good fight.
I think it is time to urge you, all of us, to face the facts, however unpalatable they may be, about how this housing business works in Oakland.
I will limit myself to that.
In the first place it is clear that houses have got to be protected when they become vacant and preferably we should prevent them from becoming vacant.
A couple of good suggestions have been made here. Mayor Reading asked for an early warning system. Someone, I think, on this panel suggested the caretaker concept which has good things to be said for it in many ways. It gives housing to people and protects the area.
I might say this reminds me to some extent of the so-called squatters' licenses in London where the Bureau Council gives licenses to people who formerly were called squatters and now called licensed squatters to get in the house and occupy it and use it as housing until it is ready to be taken over by the city for whatever purpose there
Lenders should watch the payment performance closely to determine abandonment early.
This, of course, is easier said than done but for the federally controlled lenders, perhaps a little urging from those Federal agencies to do the job right would help.
The city should put more muscle into policing sensitive areas. If there are no policemen on the streets, if there's no way for people to report to some local place in the city government and the house looks as though it is being abandoned, the lenders don't know. They can't be out there walking the streets all the time.
I think that the suggestion that HUD and VA should provide caretakers is a good one and I'd like to suggest that consideration also of their making temporary grants and I emphasize “temporary”. I don't want the cities becoming dependent on the Federal Government for police protection but simply grants to the cities to help in this area by way of redress.
The second item is how to take care of them once they are in the hands of let us say the person who repossesses.
I think that we should give a little bit more careful attention to selling these houses. Either renovated or under firm arrangements that they will be renovated, sell them to cities, to public groups, to private groups, to these nonprofit organizations that someone earlier mentioned.
I don't see why HUD and VA can't use good judgment. In fact I think they already are. I suspect there is not too much of a problem in East Oakland on that score but expanding it to the rest of the country. Why didn't they use good judgment in putting these houses at very modest prices into the hands of people who will renovate and resell?
The price that HUD and VA should sell should be low enough to make tħese houses saleable under good market prices when they are renovated. It is very costly to renovate and there have been a number of examples I think in East Oakland where the prices of houses have been run up and somebody ultimately, as they say, takes a bath on that.
We have got to somehow get around that.
Third, on selling arrangements, now here comes the banker's viewpoint out loud and clear but we really should face this. On the sale they must be sold to good credit principals under State law. No one mentioned here the antideficiency judgment aspect of California law which forbid a lender to acquire anything more than the property. He can't go against the individual with $40,000. That aside from sound credit principals are necessary or we are going to get back in the same old problem again, if you lend to people who cannot keep up the payments and cannot maintain it, we are going to have abandoned houses. That's another matter to find out what are the credit arrangements and certainly it does involve such good things as Federal insurance.
Speaking of Federal insurance, of course if you have 100 percent insurance, there is no incentive, very little except from the part of view of their interest and the public good, there is little incentive on the part of the lender to watch that loan closely and to counsel and to get in there in a hurry before the house is abandoned or before the default grows serious.
Why not consider, as has been proposed now and then, co-insurance between FHA, VA on the one hand and the lender on the other hand. That gives the lender a little bit of incentive and in my opinion the lender would be willing to consider such a thing.
The Government insurance, of course, is necessary, as we all know, in order to try to push the interest rate down to a considerable extent.
Now, I want to point out to you, if you haven't already perceived it, that what I have suggested does not envision selling to those who can't pay and there are lots and lots of people in East Oakland according to the data that I have heard today and seen before who cannot afford under what I am calling sound credit principles, to take out a loan for a house. Moreover they can't maintain it once they have obtained it.
That says I fear that there are many people in this counry of ours that cannot afford to buy houses.
I propose to you we make a mistake if we encourage them to own.
I know homeownership is a good thing but you are going to cause more trouble in the end. Maybe it's a bad thing.
All right. What to do with that. Certainly it is one thing to believe, and I believe it in the 1970's that we should see that people have a place to live, good housing.
I suggest to you that again we refer ourselves to Great Britain which is certainly no model of a country which has its books in the black, but it has had a lot of experience on owning housing and leasing and renting to people who are not able to find housing or not able to buy it.
I think in the end the State or city is going to have to own apartments, own single family houses, are going to have to maintain them and are going to have to carefully oversee the rental and lease to people who cannot qualify for home loans.
Finally the suggestions that I have heard today about the working of the private lenders with the local citizen organizations and with the cities and Federal agencies strike me as being very good. I suspect there is shortly down the road a way, if you will, nonprofit corporations become involved with this, with the lenders' money in it to get these homes back in the hands of people who can buy them and who can maintain them.
Thank you very much for your attention and this opportunity to [The complete statement of Dr. Evans follows:]
talk to you.
STATEMENT OF MARJORIE W. EVANS, DANAHER, GUNN & KLYNN, PALO ALTO, CALIF.
Thank you for your inivitation to appear before this Senate subcommittee at its hearing on S. 1988, the Abandonment Disaster Relief Act.
My name is Marjorie W. Evans. I practice law in Palo Alto, California. I am before you because of my long-standing interest in finding ways which ar both financially and socially sound to revitalize the old cities and downtowns of California. I have served as adviser in this area to businesses and to citizens, and have helped design programs to this end. I was the representative of the Bank of America on the California Land Use Task Force sponsored by the Planning and Conservation Foundation, which group has recently published its report called The California Land: Planning for People. I commend that
1 Obtainable from Planning and Conservation Foundation, 1225 8th St., Suite 310, Sacramento, Calif.