Since families can not stop the foreclosure, they end up running away from it, leaving their new homes in the middle of the night, haunts the Franklin Township section of Indianapolis, a part of the city where home builders flourished during the boom. As you take a right path into the Woodland Trails development on Arbor Trails Drive in the Franklin Township section of Indianapolis, all seems well. The home is clearly abandoned, with waist-high weeds growing in the front yard. Across the street, further up Knobstone Lane there are two houses in a row with stickers indicating the properties are in foreclosure. The aluminum siding on one home's right side is flapping in the breeze. Two doors down from the playground there's another vacant house.
Marking the transition is another foreclosed house, and three doors down is the home of Mike Pope, 24, who's emerged as the classic example of a young person on the economic margins who should never have qualified for a new-home loan in the first place. Pope opted for foreclosure this summer when the interest rate increased on his FHA-insured 2-1 buy-down loan and he was hit with local property tax increases.
As of early June, Pope had fallen far behind on his payments. Currently, gas and food alone eat up whatever take-home pay he has left after paying the mortgage.
Pope's situation is like that of many other families in Franklin Township, a section of Indianapolis south of the city's downtown that records the lion's share of new building permits in Marion County. The county encompasses the city of Indianapolis and all surrounding townships and operates as a combined city-county government. According to the RealtyTrac data, while 42 percent of the 6,572 cases of foreclosure activity in Marion County for the first four months of 2007 took place in inner-city neighborhoods with older housing stock, Franklin Township, where much of the area's new construction occurs, accounted for 6.1 percent of the county's total foreclosure activity. The township's total percentage of foreclosures is bound to grow this year as more new homeowners like Pope, living on tight margins, fall prey to rising interest rates and expensive local property taxes.
To be sure, foreclosure was not in Pope's original plans.
When the couple moved into the house in July 2004, they were confident they could handle the monthly mortgage payment of $750, which included homeowners insurance but not property taxes. To make matters worse, in early 2006, Pope received a property tax bill of about $3,000 that included a nominal fee for taxes on the lot in 2004 and back taxes for all of 2005. As with the property taxes added in, the monthly mortgage payment increased to $1,050, and by March 2006, Pope was falling behind on his payments. He says the payment would ultimately drop to about $1,000 a month by April 2008.
For all practical purposes, it's too late for Pope. Pope has no complaints about the quality of the house, but he does fault his builder, Arbor Homes of Indianapolis, on two counts, and is upset with the original lender, Republic Bank, as well. He says the builder steered him into the 2-1 loan and that the lender counted his overtime as income to help him qualify for the mortgage. Pope also claims Arbor didn't fully explain how expensive local property taxes would be. Pope says the builder's salesperson told him property taxes would be about $80 a month, when in reality they were well more than double that amount.
"If a homeowner says they were not told about property taxes, they did not hear," says Curtis Rector, president of Arbor Homes. "We offer the property tax information in writing in our homeowners' manual," he adds. "I wouldn't have access to the home buyer's loan information," says Rector. "Arbor Homes closed about 600 homes in 2006 and ... although we have choose lenders ... we worked with at least 30 different lenders." At least eight homes are up for sale on her block, and around the corner there are about four foreclosed homes.
Franklin Township is a builder's dream. While the township is home to only about 3 percent of Marion County's population of 860,454, it accounted for 28 percent of the new single-family building permit activity in 2006. Home builders have clearly capitalized on the township's willingness to accommodate such high levels of residential growth. There's little question that home builders profited heavily here during this decade's boom. National builders such as Beazer, CP. Morgan Communities, Centex, and Pulte do business in Franklin Township, as do locally based builders such as Arbor Homes and Davis Homes.
Of course with all the effort to stop foreclosures and the high property taxes, attitudes have changed. Working in tandem with the county's Metropolitan Development Commission, the township revamped its comprehensive land-use plan last year to include zoning regulations that accommodate a better mix of residential, commercial, and industrial development. "In the past, some people wanted to keep {Franklin] township residential, [while] others opposed [nonresidential] development because the projects weren't planned well," says Lincoln Plowman, a detective and councilman who lives in Lincoln Township.
The township plans to attract businesses through tax increment financing (TIF), a state program in which the township issues a bond that can be used to help build commercial or industrial buildings or local roads and sewers. Property taxes are then used to pay off the bond. Murphy tried to aid his constituents by introducing a bill that would have required builders to calculate the local property tax and present that information to new home buyers. The homeowners we interviewed in the Franklin Township subdivisions were upset by all the foreclosure activity. There are many reasons for all the foreclosures in the Franklin Township area and throughout Indiana. Second, Indiana has more affordable housing than most states, which means that new homes are accessible to young people in entry-level jobs.
At press time, the locals in Franklin Township had just received their property tax bills. The reassessment, combined with double-digit budget increases on many line items, resulted in average property tax increases in Franklin of 35 percent or more. Tack on rising interest rates on subprime and 2-1 buydown loans and residents are concerned more people will face foreclosure. The issue is having statewide impact: By late July, Republican Gov. Mitch Daniels was looking at holding a special session on the property tax issue and having some counties redo the assessments.
"If property taxes go up, all the people will be gone," says the schoolteacher who lives near Pope. This news is plenty disturbing to home builders, and some builders think the lending community has a lot to answer for.
Eggleston insists his company makes prospective home buyers aware of the risks of homeownership, including full disclosure about local property taxes. an informational Web site about homeownership it sponsors with Chase, Countrywide Home Loans, and Wells Fargo, among others.
Rector of Arbor Homes says his company works hard to educate home buyers on the responsibilities of homeownership, as well, but adds that home builders can't legally make certain value judgments about prospective buyers.
Neil
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