Treasury Department Allow States To Divert Foreclosure Fraud Fund to Demolition

In the wake of last year’s multiple foreclosure fraud and abuse settlements and ongoing dispersion of housing assistance funds from the Troubled Asset Relief Program (TARP), many former homeowners thought that they would be receiving some form of compensation for wrongful foreclosures and poorly-conducted foreclosures, loan modification attempts, and short sales. Many others hoped that the money would be used, as directed by the settlements and TARP itself, to help them work out a way to keep their homes. Few have received such compensation or assistance, however, and even fewer should continue to look for it thanks to a recent decision from the U.S. Treasury Department that will allow states to use monies from these massive settlements and programs to demolish homes instead of helping people stay in their distressed homes[1].Michigan and Ohio have already altered their contracts with the Treasury so that they can use foreclosure prevention funds for demolition. Mary Townley, director of homeownership at the Michigan State Housing Development Authority, said that the diversion of funds will actually help more homeowners remain in their homes since “many of these communities had so many blighted properties that homeowners would throw their arms up and say… ‘Why am I doing this?’” Michigan has diverted $100 million (20 percent of its Hardest Hit Fund money) to demolishing 7,000 houses.Over protests from housing advocates who insist the money should have gone to help homeowners who did care about staying in their homes, the demolition process has already begun in Detroit, Michigan, where areas that still have potential for growth are being targeted for demolition funds. “You’ve got to remove blight in order to bring in new growth,” said state senator Carl Levin, adding that in his view, “supporting homeowners means you’ve got to remove the blight in their neighborhood.” Levin admitted that demolition is a “creative use” of the Hardest Hit funds, but said that in his mind, it is a necessary and “very positive use”[2]. Homeowners living in the areas targeted for demolition hope that removing blighted homes will encourage builders to erect new structures in the area and new homeowners to buy.