from wsj:

INDIO, Calif. — Officials at a Citigroup Inc. office in St. Louis placed a call to this desert town recently. The bank had caught word that Indio was coming after the lending giant with fines and threats of criminal charges. The offense: an algae-infested swimming pool at 79760 Eagle Bend Court.

Citigroup wound up in charge of the foreclosed home, one of thousands of such properties it was managing across the country. But last year, Indio passed a law that allowed it to charge banks with a criminal misdemeanor if they allowed a home to fall into disrepair.

“If I need to do it, I’ll say, ‘Mr. Bank President, if you don’t come and take care of your property, we’re going to come arrest you and take you to court in California,'” says Brad Ramos, Indio’s long-serving police chief.

The hard-line approach is part of this town’s attempt to gain leverage over some of the nation’s largest lenders. A couple of years ago, Indio was a real-estate bonanza. Old date farms were closing down, sprouting subdivisions in their places. Today it’s a different scene with one in 10 houses either in default or foreclosure.

The upshot is that faraway banks have become the de facto landlords of Indio, and people here say the absentee lenders are letting the whole valley fall apart. Houses “look like dust bowls,” says Gene Gilbert, the mayor pro tem, who thinks a glut of run-down homes may depress his hometown’s local market long after the recession ends.

Criminalizing things like algae in a pool has given Mr. Ramos a stick to make lenders snap to attention. Without that threat, the police chief says, “far-off banks, billion-dollar corporations, they could simply ignore us.”

A Citigroup spokesman says the bank never meant to ignore Indio and all along had “tried to maintain the property in good condition.” After the letters from Indio, Citigroup paid a $3,450 fine to Indio and sent a cleaning crew to fix the pool at Eagle Bend Court where Citigroup had managed the foreclosure process.

Mr. Ramos has organized his department to focus on this new type of crime. Uniformed officers make weekly sweeps through subdivisions, casting about for infractions like dead landscaping. Financial institutions from Seattle to New York are finding themselves providing new services that include pruning bushes and watering cactuses.

On Austin Drive, J.P. Morgan Chase & Co.’s Washington Mutual bank had a real-estate agent water some dead grass after receiving a warning from Indio. On Palm View Street, Fannie Mae spent $7,000 to remove a fallen tree and took care of a few broken windows. Indio says it’s still pursuing Bank of New York Mellon Corp., the trustee of a property on Avenida Linda Vista where weeds were “four to five feet tall.”

It’s a tale of two cities. In Coachella, Calif., foreclosed homes are left to deteriorate and drag down housing prices. But in neighboring Indio, city officials have threatened banks with legal action if foreclosed houses aren’t maintained. Nicholas Casey reports.
Lenders say that such repairs and upkeep are part of the normal course of business, and that Indio’s ordinance hasn’t prompted any special actions. A Washington Mutual spokesman said local real-estate agents send in photos of bank-owned properties so the lender can watch for disrepair from afar. A Fannie Mae spokeswoman said the lender’s first goal is to “stabilize neighborhoods.” New York Mellon said its role as trustee didn’t merit citations from Indio.

Even before the mortgage crisis erupted in full, big cities like Cleveland and Buffalo had fashioned laws of their own to browbeat banks into taking care of urban blight. Now some small towns are also taking matters into their own hands.

Indio’s neighbors Palm Springs, Desert Hot Springs and Cathedral City each pushed ahead with laws much like Indio’s. The town’s own ordinance was fashioned off a 2007 law from Chula Vista, a city south of San Diego which began fining lenders up to $1,000 a day for unsightly or dangerous code violations such as broken windows.

“These lenders speak one language — money,” says Doug Leeper, the Chula Vista code-enforcement manager, who says he has issued around $1.4 million in fines against lenders. So far, he’s collected half the fines and has plans to wrangle the rest through tax liens when the homes are eventually resold.

Indio’s gruff Mr. Ramos, however, is pushing it beyond tax liens, equating the matter to “arresting the guy that robs a bank.” Any softer approach would put the city’s home prices in further free fall, he says.

A former railroad pit stop, Indio was founded a century ago deep in the Mojave Desert’s Coachella Valley. For decades, it scraped by as the “Date Capital of the World.” But about 10 years ago, life began to change.

The booming Los Angeles housing market — centered more than 100 miles away — expanded to claim the Coachella Valley as its eastern frontier. Indio’s population, about 49,000 in the 2000 census, swelled to an estimated 81,000 today. A new land rush was on.

Longtime residents worried that the boom times wouldn’t last. Mr. Ramos recalls looking at a map of developments pouring across old date fields and thinking: “I know our median income. Who is keeping up with the payments?”

By last year, some of the city’s new developments were turning into pockets of decay and neglect. Million-dollar homes were being stripped of metal. New houses in gated communities became the domain of squatters.

In March of last year, Mr. Gilbert penned a new law requiring banks to register homes the moment they went into foreclosure so the city could monitor if they were being maintained. Fines could pile up past $25,000 if the properties were found to be in disrepair. In a bold move that took its measures beyond mere civil offense, failure to comply was deemed a criminal misdemeanor that could lead to an arrest.

City officials say they ginned up a campaign to notify the banks about the new law, but few took action. “The banks were trying to test us to see if we were serious about this,” says Jason Anderson, a code-enforcement officer in Indio.

Countrywide, one of the biggest lenders in the area, initially just tried to make the problem go away by writing checks, say city officials. Instead of attending to the upkeep on the properties, they’d ask, “How big was the fine?” Mr. Anderson recalls.

City officials say Countrywide has since become one of the most proactive lenders, contracting local real-estate agents to monitor properties and paying for gardeners to handle the upkeep. “There’s considerable financial incentive for the bank” to maintain properties, a Countrywide spokesman said.

Write to Nicholas Casey at [email protected]

Printed in The Wall Street Journal, page A1