From the New Jersey Spotlight
JOE TYRRELL | SEPTEMBER 25, 2014
Leaders in both municipalities address economic, public health and crime, but take different approaches on foreclosures and eminent domain
Two energetic new mayors are facing similar housing, economic development and social issues in their neighboring communities of Irvington and Newark – and their responses are also frequently similar.
Ras Baraka in Newark and Tony Vauss in Irvington are each focused on basic issues related to public health and safety -- combating crime while cleaning up trashed lots and abandoned buildings. But they also have their eyes on the larger issues of building morale in their communities and connecting with people in their neighborhoods.
But on one issue that has brought the municipalities national attention -- whether to help residents with troubled mortgages keep their homes -- Baraka and Vauss are heading in opposite directions.
As the national economy continues to rebuild in the wake of the Great Recession, foreclosures have steadily declined in most housing markets. In New Jersey, tough, new foreclosure cases continue to flood the courts, with more than 36,000 so far this year.
Baraka promised to have a “very aggressive” program in place by the beginning of next year to stem the tide of foreclosures and the resulting vacant buildings plaguing the city.
“We’re going to employ eminent domain to take mortgages from the banks if necessary,” as part of a strategy to pressure banks to work with local borrowers to keep their homes, Baraka said.
Eminent domain allows governments to acquire property, even from unwilling sellers, for a “public purpose” such as road widening or school construction. But courts have allowed its use for a wide variety of private interests, such as shopping malls, arenas or casinos.
In recent years, some legal scholars and housing activists have proposed using it to take “underwater” mortgages – mortgages with higher debt than the actual value of the property -- from lenders, then offer the borrowers better deals to allow them to keep their homes.
“I don’t know that it will eradicate the problem, but we want to slow down more foreclosures,” Baraka said.
Just uphill from Newark, in Irvington, the Township Council was poised to take a similar step in May, but held off after Vauss’s sweeping election victory over a field that included three-term Mayor Wayne Smith.
“I really don’t like talking about eminent domain,” Vauss said. “It’s such a hot-button issue for so many people.”
“With eminent domain, a lot of people are under the illusion that the municipality will do something so they can keep their home and not pay the mortgage,” he said.
Instead, Vauss hopes to convince private developers that the township is ready to do business, by packaging properties already taken for nonpayment of taxes into “redevelopment areas.”
Opposed by bankers
The financial industry opposes the use of eminent domain to help borrowers, and has countered with threats of lawsuits or “red-lining” -- refusing to lend to residents or businesses in participating communities. The clamor has prevented any town but Richmond, CA, from endorsing the concept, and even there the council lacks the super-majority of “yes” votes needed to put it into action.
Before the municipal elections in May, though, the Irvington council voted 6-1 to give the Smith administration the go-ahead to write a redevelopment ordinance that included the use of eminent domain as a strategy to reduce the number of underwater mortgages and homes in foreclosure.
Only outgoing Councilwoman Lebby Jones, who stands to become an Essex County freeholder, voted against the plan, giving the befuddling explanation that “once you’re in foreclosure, there’s nothing you can do.”
After the election, though, the council voted 4-2 to hold the measure for further review. The key switched vote was by retiring council President D. Bilal Beasley. He is also stepping down from his Essex County freeholder seat in favor of long-time ally Jones, but not before engineering Vauss’s local victory.
While housing activists and some residents argued vociferously in favor of anti-foreclosure action, “not everyone was persuaded,” Beasley said. “Notably me.”
Locals credited lobbying by a trade group, the Securities Industry and Financial Markets Association, whose talks with Smith had not gone well, as well as a misleading election-eve mailer from the New Jersey Association of Realtors, for raising doubts about the eminent domain concept.
But the municipal elections also highlighted fault lines within the Democratic Party. Smith lost the support of Beasley and other stalwarts after a quixotic bid for the 10th Congressional District seat in 2012, easily won by Donald Payne Jr. with the backing of the powerful county organization.
In Newark, Baraka took on the same party machinery to beat a candidate whose candidacy was also fueled by extraordinary financial support from Wall Street “school reform” interests. As a result, Baraka owes little to the lenders behind the latest wave of foreclosures.
On the same night that the Irvington council stalled eminent domain and abruptly adjourned amid jeers from the audience, the Newark council, without comment, routinely approved Baraka’s move to add it to the city’s redevelopment plan.
The action in Irvington “could have been worse,” said Udi Ofer, executive director of the state chapter of the American Civil Liberties Union, which has provided legal aid to Richmond and Irvington. The routine process questions raised by council members could be addressed if the township really does review them, he said.
“But it’s a shame because Irvington had a chance to become the national leader, people around the country were watching them,” Ofer said, “and now the attention will inevitably shift to Newark.”
Some of the questions raised by the Irvington council -- such as how to calculate tax values for properties undergoing foreclosure-related redevelopment -- already are being addressed in real-estate deals in Newark.
“It’s puzzling that they would still be asking those questions when there is actually a significant market in distressed mortgages,” said Linda Fisher, a Seton Hall University law professor who studies local foreclosures. “There are a number of hedge funds who specialize in them, and have established formulas for exactly those situations.”
Pilot projects in Newark
Nonprofit groups are trying similar measures, such as one already in progress in Newark. In March, the city contracted to acquire 156 abandoned properties with the nonprofit Community Asset Preservation Corp. for redevelopment as rental and for-sale units.
The units are concentrated in four neighborhoods hit hard by the foreclosure crisis: Lower Broadway, Fairmount Heights, Upper Clinton Hill and Lower Ferry. Some of those areas were stable before the housing bubble burst, but since then all have seen high rates of vacant buildings and the attendant increase in social problems, said Jeff Crum, CAPC’s real estate director.
“Some of those homes may have been bought at the height of the real-estate bubble,” a time of inflated values and often interest rates, he said. The nonprofit is in the process of restoring the homes and returning them to the market at reasonable prices, Crum said.
Beyond keeping Newark families in the city, CAPC also is looking to restore the neighborhoods by providing space for stores and small businesses, according to Crum. The repair and renovation program itself should provide at least a modest boost, since at least 40 percent of the contracts will go to Newark companies, he said.
Stabilizing blocks is a cost-effective way “to give a fresh start to underserved neighborhoods in Newark, keeping more community residents in their homes and revitalizing vacant properties,” said Wayne Meyer, president of New Jersey Community Capital, CPAC’s nonprofit parent.
Like other New Jersey communities, though, Essex County is still suffering the effects of mortgages purchased before the housing bubble burst. Those deals were often based on unrealistically inflated values, and sometimes on erroneous or fraudulent applications, and at unsustainable interest rates.
This spring, researchers for Living Cities, which encourages investment in low-income communities, charted Newark’s real-estate roller-coaster. At the turn of the century, prices for one- to four-bedroom homes in the city averaged about $118,000. By 2006, at the apex of the bubble, the average price had soared to $307,000, according to the report.
By 2012, in the aftermath of the collapse, the average price was back at $125,000, according to the report, which included researchers from Rutgers University, New Jersey Community Capital and the Center for Community Progress.
In response, Baraka has proposed an “HED” strategy, linking housing to economic development. The idea is to distribute housing, business and job opportunities more widely, while enabling the city government’s real-estate, economic development and related programs to work together instead of remaining in their own self-contained “silos,” the mayor said.
“Connecting housing with economic development is something that previous administrations haven’t really tried,” said Richard Cammarieri, a Baraka advisor and director of community projects at New Community Corp. “Some have certainly pushed economic development, but as an end in itself, and often with a focus on the downtown rather than citywide.”
“I don’t think many people realize that there are still more than 300 small manufacturing firms throughout Newark,” Cammarieri said. “We need to find ways to support local businesses.”
Results still uncertain
While there are signs of life in the city’s downtown housing market, the large projects in the pipeline are being supported by government incentives such as tax abatements while not necessarily priced for current local residents, Cammarieri said.
“They manage to move quickly, and obtain significant assistance, leaving some of the rest of us to wonder exactly how that happens,” he said.
Even a project like Teacher’s Village -- a $150 million complex around Halsey Street to include three charter schools as well as stores - does not really address the city’s most pressing housing needs, Cammarieri said. Its apartments, pre-marketed to teachers, are priced “more for people with union jobs,” steady incomes and benefits, he said.
“I don’t know that they’re going to be able to fill that whole complex with the people they thought they were going to attract,” Baraka said, adding he hopes the subsidized projects encourage other development.
Newark officials said the administration would draft neighborhood revitalization plans for five commercial corridors: Clinton Avenue, Ferry Street, Lower Broadway, Mt. Prospect Avenue, and South Orange Avenue. Efforts will be made to promote business and industry clusters in these areas, as well as support community-oriented projects, Baraka said, encouraging residents to chime in with suggestions.
As one of his first steps after taking office in Irvington, Vauss marshaled public works employees to remove trash from abandoned properties and public areas being used as unofficial dumps. In September, he launched phase two, identifying owners of derelict properties and ordering them to take corrective measures.
“If your property is not presentable, you will be given notice to clean it up,” Vauss said. “If you don’t, then we will issue a summons against the property owner, take them to court, place a lien against their property.”
Vauss also has an initial target area for new housing: badly blighted blocks of 21st and 22nd Streets. The mayor said his administration will move quickly to put together a two-year redevelopment program, packaging as many as 100 properties already acquired by the township, mainly for nonpayment of taxes.
“It’s incumbent upon as to get more ratable properties back on the tax rolls,” Vauss said, adding that he might entertain tax abatements for large-scale development, “but not if it’s just one or two homes.”
Turning around such a troubled neighborhood would be a plus in itself, but also could change attitudes about the township, according to Vauss.
He envisions “gated communities” with limited access, similar to the cul-de-sacs that Baraka suggests for some new development in Newark. Vauss hopes to appeal to newcomers being priced out of Brooklyn and Hoboken, adding “clean and safe streets” are a key part of that package.
Whether that helps current residents struggling to keep their homes depends on their individual circumstances, the mayor said. The turnaround will take time, but could eventually improve housing values throughout Irvington, he said.
“Some of the people who are able to stay here and ride it out will see the benefits,” Vauss said.