Lenders Let ​“Zombie” Mansion Rot

An abandoned showpiece circa-1901 home in Westville is crumbling — and the city, its legal owner, and a series of would-be rescuers say they can’t stop it.

More specifically, they say they’ve been trying to put the property into responsible hands. But they can’t work their way through a maze of invisible out-of-town bankers, mortgage lenders, and lawyers who seem in no rush to protect their investment.

The saga has gone on for five years, since the early years of the national foreclosure crisis. The fate of the home at 500 Central Ave. reflects how neighborhoods across the city and across the country continue to pay the price of irresponsible lending by the nation’s largest corporate lenders, in the form of ​“zombie houses.”

That’s the term for houses left suspended in mid-foreclosure and vacant because buyers can’t afford to buy them and overburdened lenders can’t, or won’t, step in to arrange discounted sales to protect their losses. An estimated 141,406 ​“zombie” foreclosures were afflicting communities across the country as of June, according to one Realty Trac report. New Haven doesn’t compile statistics on zombie houses; it has about 600 vacant houses, according to Frank D’Amore, deputy director of city government’s blight-fighting agency, the Livable City Initiative (LCI).

New Haven has given LCI tools to wake the zombies and rescue the homes by pressuring lenders to take action. That has worked in many cases.

Not at 500 Central. LCI staffers on the case said they’ve encountered few cases as complicated and frustrating as this one.

​“It’s a cat-and-mouse game,” said D’Amore (pictured). With the mice remaining out of sight.

The Zombie Mystery

The neighbors — including this reporter — have been watching for years with confusion the decline of the ornate pink 4,218 square-foot, three-story, 13-room home at the corner of Burton Street and Central Avenue. Older and far larger than its neighbors, set back from the street on a large lot, it dominates and in some ways determines perceptions on the block. We’ve watched LCI come mow the overgrown grass and shovel the sidewalk and put up a fence to guard against kids or trespassers cracking their heads by stumbling into the empty, cracked swimming pool. We’ve seen visitors swing by to pick up mysterious packages left on the porch (a technique, I’ve learned, used by drug dealers using the addresses of abandoned homes to have contraband shipped). We’ve seen people spend a year trying to buy the property and fix it up, to no avail.

All along, we’ve wondered: Who’s responsible? And why wouldn’t that someone want to get the house in new owners’ hands before it loses all its value?

Interviews with officials, neighbors, lenders and their representatives, and searches of public records, offer clues to the mystery. But not an obvious answer.

We watched as an attorney named Anthony Wallace bought and moved into the home with his family in 2001. They paid $277,000. Wallace was a man on the move — he had bought and then flipped two smaller homes in the neighborhood, eventually seizing the prize. He put his law office on the first floor, then got a zoning change to operate there, and lived upstairs. He put in a pool.

Despite outward appearances, the century-plus-old edifice was falling apart on the inside, Wallace said in an interview this past week. It required continual work. Like when he discovered, two years after the purchase, a hole in the roof. Or that a double-shower and jet tub had been ​“shoddily” installed.

“That house is a monster,” he said. ​“It is a beautiful monster. It was built in 1890. What hasn’t been replaced is the original, from nails to pipes to wiring. Once you have a water leak, you have to start tearing out entire bathrooms. You can’t tell where the leak is. You can’t tell if it’s a pipe or not. If it’s a pipe, all the other pipes have to be replaced. Or the tile.”

Fortunately for Wallace, banks were eager to lend money, as much as money as they could, whether or not borrowers had the wherewithal to pay it back. He refinanced his mortgage, got second mortgages. With the proceeds, Wallace was able to pay $22,500 to fix the leaking half of the roof with the hole. He spent $30,000 on a new pool and used some of the mortgage money to pay off his old student loans.

In 2006 Wallace’s life began unraveling. First his marriage fell apart. He had had the house in his wife’s name, to shield him from potential lawsuits in his professional capacity as an attorney. Now he put the house in his own name and, as part of the divorce settlement, paid his wife for her share of the house. Countrywide Home Loans was happy to help. In 2007 it lent him $440,000 — with the house as collateral for most of it. Wallace said he was informed that the company could give him a second $50,000 mortgage for the rest based on his income stream as an attorney. Wallace leaped at the chance; he paid his wife and the old mortgage note.

Then he found himself without the money to pay off his big new debts as well as divorce-related expenses, Wallace said. Including dating, which he found more expense than in his pre-marriage youth. ​“Spending money on that stuff — I don’t know how the kids do it,” he said.

Then came the housing crash, when millions of shaky loans like those given Wallace — with borrowers unable to meet repayment terms — destroyed lenders like Countrywide.

Wallace’s law business tanked. He laid off an associate, then a secretary. He said that side effects of the housing crash killed his personal-injury and divorce business. He also was wrestling with personal problems. Records from the Statewide Grievance Committee show that clients filed two complaints against Wallace for which Wallace was reprimanded.

Countrywide was having bigger troubles — from hemorraghing finances to federal criminal investigations. In 2008 Bank of America took over Countrywide’s dicey loans, including, eventually, Wallace’s two loans.

In January 2009 Bank of America won a foreclosure judgment against Wallace for 500 Central. It was set to take the house, kick out Wallace — and recoup as much of its losses as it could.

At that point, ​“like every good American, I went to bankruptcy court,” Wallace said. ​“There was no way I was going to dig my way out of bankruptcy. I was going to lose my house; [but] I wanted to delay it.”

As an attorney, Wallace knew that his filing would halt the foreclosure for now. The foreclosure was reopened. He was able to stay in 500 Central while he started rebuilding his life. He said he found a new place to live by the time, in April 2010, he was ordered as part of the bankruptcy case to stay off the property at 500 Central. The house was now officially vacant. And it would stay that way.

Bank Shifts

Thanks to bankruptcy, Wallace was now off the hook for the $440,000 mortgage assumed by Bank of America. But he was still the legal owner; he could get sued if someone slipped and fell on the property. He couldn’t easily sell the house; while the swimming pool was empty, the property itself was ​“under water,” worth far less than the debt on it. Any new buyer would have to pay off the two mortgages plus liens placed on the property for rapidly accumulating debts to LCI and the regional water authority, among others.

This is a common occurrence for banks. They usually take possession of the abandoned house and sell it ​“short,” for less than the debt. Or they leave a foreclosure in limbo, so they’re not legally responsible for the house; but they keep current on taxes and arrange for short sales just the same.

Bank of America’s neglect of properties in partial foreclosure has proved a headache citywide. Meanwhile, some New Haven property-flippers have become masters at scooping up those bargains, obtaining mortgages to fix them up, then often pocketing the mortgage money and walking away. Some have even schemed to create new entities to repurchase those homes short a second time under new corporate names. The federal government has started prosecuting and sending people to jail for those scams in New Haven. They tend to take place in poor neighborhoods, exacerbating blight.

Wallace said he had an idea for how to get the bank to resume the foreclosure once the bankruptcy was completed. As an attorney, he knew that if he moved to reopen the foreclosure case, the bank would respond quickly to prevent a judge from vacating the foreclosure. Or at least the bank’s attorney would show up in court. That’s how it has always worked in his experience.

But this was different. The lawyer representing Bank of America failed to show up in court.

“I’m one of millions,” Wallace observed. ​“That’s the epiphany I’ve come to. They don’t know who I am. They don’t know I exist. I’m sure I’ve made much more noise than most people. I’m just a blip on their computer. I think it comes down to the enormity of what they’ve taken on.”

Wallace didn’t pursue the opening to try to get the house back. He didn’t want it back. So he and the bank left the case alone. The court file shows no action taken in the case taken for the past three years in the case. The foreclosure went into, and has remained, in limbo.

Events across the country in Washington may be part of the reason.

Bank of America spokeswoman Jumana Bauwens noted in a phone interview that federal regulators at two points have urged lenders to hold off on foreclosures while the government sought ways to help borrowers avoid foreclosure — once because of the crash, then because of a ​“robo-signing” scandal involving many major lenders. (Without admitting wrongdoing, Bank of America agreed to pay a $32 million settlement for its part. It also joined JP Morgan Chase & Co., Wells Fargo & Company, Citigroup, Inc., and Ally Financial, Inc. in agreeing to pay $25 billion to settle charges of fraudulent lending and foreclosure practices.)

At one point, Bank of America even sent Tony Wallace a $350 check — his share of a massive class-action lawsuit the bank settled based on allegations of making improper loans. Did Wallace really deserve to be paid for entering into a loan he couldn’t pay back? He said maybe he wasn’t a victim of the bank, but many others were. ​“I have a license to practice law. I have an ability to make money,” he said. ​“Some of the poor bastards they’ve done this to, they work in a factory. They throw money at them, have them where they want them,” then place borrowers in difficult life situations when they can’t afford to pay back the loans.

Bauwens also said Bank of America made a decision — ​“from a litigation perspective [and] from a business perspective” — to sell many of its loans so it could have a more manageable portfolio. It had far too many properties to stay on top of. She said she didn’t know if 500 Central’s loan was one of the ones sold.

When Bank of America owns the debt on abandoned properties facing foreclosure, it makes sure to keep them up in order to protect its investment, Bauwens said. ​“If the property is vacant, our general policy is we’re going out there regularly, we’re inspecting it, we’re mowing the lawn.”

The bank also pays taxes, also to protect its investment. So while it didn’t pursue the foreclosure further, it did keep current on taxes on 500 Central.

In September 2012, the bank hired a different institution, Ocwen Loan Servicing LLC, to handle the 500 Central loan. Since then, LCI officials and prospective buyers have been confused about who owns the loan, who has the final say on it. No documents could be found in city land records showing a transfer of the loan to Ocwen, although it’s not always easy to track private resales of large batches of failed loans. Ocwen spokeswoman Margaret Popwin told the Independent she can’t discuss individual loans. Wallace said he believes Ocwen owns the loan; LCI wasn’t aware Ocwen had even stepped in to the servicing role. Bank of America’s Bauwens confirmed Tuesday that Bank of America did not sell this loan to Ocwen (though it has sold ​“a majority” of other loans to Ocwen).

“[W]e still own the rights for the servicing. I also know that they are proceeding with foreclosure,” Bauwens wrote in an email message. ​“I still don’t know the status of maintenance and who the owner of the loan is.” She explained that loans have two ​“components”: ​“Someone who owns the servicing rights to the loan (the ability to service the loan and collect fees associated with servicing the loan).” And ​“the actual investor of the loan.”

Ocwen, meanwhile, is responsible for day-to-day decisions involving maintenance and sales.

“Responsible” technically, but not in practice.

According to the city tax office, Ocwen does continue to pay the taxes and is current. Or an agency it pays to pay taxes on all its properties, called CoreLogic, is paying the taxes, including a $5,011.35 payment on July 31, 2014. (CoreLogic spokeswoman Alyson Austin said she could not discuss a particular client’s case. She did say the firm tends to handle tax payments for large numbers of houses, and does not generally service other parts of the loan, like taking care of property or arranging sales.)

Otherwise, no one can find Ocwen or anyone who can answer questions about the properties.

LCI deputy chief D’Amore and Nick Licata, the LCI Westville district worker, have been looking for someone to contact. This past year they stopped hearing from the lawyers who represented Bank of America on the case for years. Notices about fines and liens now went to a New York firm called Leopold & Associates. The firm would sign for receipt of letters. But no one would answer calls or letters.

The fines had been piling up. After Wallace left the house, D’Amore and Licata noticed the grass and weeds growing fast on the property. They saw the unprotected empty pool (pictured). Even before Bank of America farmed out day-to-day responsibility to Ocwen, its own servicing company affiliate was difficult to reach. It wasn’t showing up at the property.

“We decided to take responsibility ourselves,” D’Amore said. ​“They were not taking care of it. We knew it would take a long time.” D’Amore knows the taxpayers aren’t at risk; he has sent crews to dozens of abandoned properties around town to keep blight at bay. LCI bills the owner for the yard work and snow shoveling and repairs; it puts a lien on the property. When the property gets sold, LCI gets paid back. Bank of America has decided in general in New Haven that it would rather let some houses rot or let those bills pile up than take full ownership of an abandoned property.

At one point LCI brought Wallace in for a hearing on the condition of the property. Wallace convinced D’Amore and Licata that he very much wanted the house sold, but his hands were tied because of the lenders.

LCI has a second tool to pressure irresponsible lenders: It can levy $99-a-day fines for blight violations. Those pile up fast. That awakens the blight zombies, gets lenders’ attention. Almost always LCI has a human being at a lenders’ servicing agency whom it can contact in those cases and get some results; the lender’s representative doesn’t want to see the property burdened with too many fines and therefore prevent anyone from being able to buy it.

But not with 500 Central. LCI’s combined bill for fees and fines has risen to $59,065.80 and counting.

The last resort is for the city to foreclose on the property to collect on the liens, and then sell the property itself. It can forgive back debts that way. It has done so with other properties in town, successfully finding new homeowners to fix up and live in properties.

But that process would take a good year and a half to two years with 500 Central, D’Amore estimated. By that time the city could run up huge legal bills — and a lender could at any time circumvent the process and finally take responsibility.

So he’d rather find someone at Leopold & Associates. They can’t even find out which lawyer to contact. Calls to Ocwen and the firm by the Independent didn’t produce anyone to answer questions, either. But the foreclosure file in state court did list an attorney as representing the firm in the case; her name is Karen Elizabeth McArthur. It lists her work phone number, 914 – 21-5787, which turns out to be a general number. She failed to return calls left at her extension (123). She did respond to an email (sent to [email protected]) seeking comment.

“What is the nature of your call and involvement in the case?” she wrote back at 5:27 p.m. Tuesday. She subsequently wrote to say she would refer questions to ​“the appropriate party.” At the time this story was published, the appropriate party had not responded .

D’Amore and Licata shook their heads in disbelief while recounting their efforts to trace a paper trail or keep up with the continually changing roster of servicers and attorneys supposedly representing the lenders responsible for 500 Central’s fate. They hadn’t even been notified that Ocwen had taken responsibility for the property, they said last week.

“This is one of the worst titles I have seen. It’s so confusing,” Licata said. ​“One thing I’ve learned with banking: Common sense doesn’t apply.”

What Next?

On Central Avenue, neighbors were looking to fix up the house and live in it. One prospective buyer, Ian Alderman, lives around the corner on Burton. He spent the better part of a year talking to Wallace, trying to reach the lender, negotiating a potential sale. The price sounded good: $100,000. Then Alderman found out about all the liens and the mortgage debt. No way could he spend a half-million dollars or more. Plus it was hard to find out just who could make the decision about allowing a sale to go through on the house. Another prospective buyer in the neighborhood who also spent a year investigating a sale, including having the house inspected, tells a similar tale.

“We pulled out,” Alderman recalled. ​“We were scared by it — there were no real answers. I felt the whole thing wasn’t above board.” He accused Wallace of not being up front about all the debts. Wallace insisted that he told a broker handling the sale from day one about the need to tell prospective buyers about the debts, and that the broker failed to.

To date, besides an estimated $440,000 in outstanding mortgage debt, any potential buyer is on the hook for over $50,000 in federal government liens and another $11,000-plus in state liens, not to mention the LCI bill. The lender can waive the mortgage — if a lender can be reached. And LCI can waive the penalties, theoretically.

After a couple of years of abandonment, the house’s value was still $300,000, according to an appraisal cited in the court file.

The asking price is now $100,000. According to Licata, the roof is leaking again (the half Wallace didn’t need to fix at the time, according to Wallace). Black mold is inside the walls. The porch is rotting, support posts tipping and ready to buckle. Ivy (pictured above) conceals an entire portion of an outside wall.

It would take a buyer around $100,000 to get the house back in decent shape, Wallace averred.

He’s talking to another prospective buyer, the head of a real-estate management firm in town.

The prospective buyer (who asked to remain anonymous) said he spent his early childhood living in a similar grand Victorian in East Rock; he has been looking for years for a similar home to buy, fix up, and occupy. Friends told him about 500 Central, and he started pursuing it. He expressed confidence that because of his professional experience buying and selling houses, he may be able to penetrate the invisible wall behind which the faceless, nameless decision-makers have so far eluded other suitors. If he succeeds, 500 Central may remain standing after all.

Meanwhile, Wallace has remarried; the couple bought a home three blocks away from 500 Central. He hears regularly now from Ocwen: He said he has received at least six solicitation letters over the past year trying to sell him on taking out a new loan. He has not responded.