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Continued: Part 3: Suburbs stuck with empty houses are trying to figure out what to do now

An hour after the Otsego City Hall has officially closed for the evening, a dozen City Council members and administrators work overtime, struggling to find solutions to a new and unexpected menace: vacant houses.

In this once fast-growing city of 11,000 people, about 30 miles northwest of the Twin Cities, there are 138 empty homes, spread throughout the city's newer subdivisions. In one subdivision more than half the homes are vacant, and many are in foreclosure.

Hunched over largely uneaten pizza, city officials ask questions that can't readily be answered. How should empty homes be monitored? Should the city turn off the water to prevent freezing pipes? How can criminals be kept out?

Few in Wright County ever expected the housing market downturn to be so ugly. Problems once associated with inner-city blight have arrived here with little advance warning, and officials are scrambling to revitalize neighborhoods that have fallen into decline just years after they were built.

Wright County, which welcomed the growth, and in some areas did little to control it, is now paying the price. Housing values are declining at a time when many local governments are in the midst of building new schools and roads and expanding waste-water treatment plants. And vacant homes and half-built subdivisions do little to attract employers or shops that might help turn things around.

Foreclosed homes affect more than the owners of those properties and their lenders. In Minnesota, where one in 40 houses is projected to go into foreclosure in the next two years, homes within an eighth of a mile of a foreclosed property are set to lose an average $4,129 in value, according to a report released last week by the Pew Charitable Trust.

Losses attributable to foreclosures and property-value declines will trim $2.3 billion from Minnesota's state and local tax base. But the total cost of foreclosed and vacant homes is much higher.

Kil Huh, the Pew Center's research manager, said that in Chicago a single foreclosed property can set the community back up to $30,000 in police, fire and code-enforcement costs.

"It's a race against time," Huh said. "It not only hurts families that are in danger of being foreclosed upon, but communities, as well."

Tax tremors

Until recently, local governments in Wright County have been large beneficiaries of the explosive housing growth. The county's overall property tax revenue nearly doubled to a projected $46.3 million in 2008 from $24.9 million in 2003. Last year, residential properties accounted for nearly 60 percent of that figure.

In Montrose, a city of 2,500, the assessed value of agricultural land plunged 28 percent last year, in large part because fewer developers are buying farmland for subdivisions. In both Otsego and St. Michael, agricultural land values also posted double-digit declines last year.

The full impact of the slumping values on local government budgets won't be known for another year or so, when tax assessments catch up with the decline in housing prices. A Wright County commissioner, Dick Mattson, has proposed a hiring freeze.

Elmer Eichelberg, another Wright County commissioner, said: "We might need a meeting of the minds and figure out a way to cut costs."

Some areas are already feeling a budget squeeze. In Buffalo, the county seat, city officials are grappling with how to pay for the $17 million in bonds issued to pay for the expansion of their waste-water treatment plant. The bonds were to be financed partly from fees assessed from the construction of new houses.

But the city's initial forecasts were wildly off the mark. Just 35 new houses were built in Buffalo last year -- compared with a projected 65 -- and none has been constructed in the city so far this year. Buffalo has already refinanced the bonds and raised sewer and water fees by 5.5 percent to make up for the lost income.

Also in Buffalo, the county is spending $52 million on a jail and law-enforcement center on 89 acres of undeveloped land. It's a project funded, in large part, by bonds backed by property tax revenue that could slide along with housing prices.

"It should have been obvious there was a problem, when developers kept building and building and building, in spite of the fact that many of their houses weren't being sold," said Fred Naaktgeboren, mayor of Buffalo. "A lot of people wanted to believe everything was all right."

Stealing the kitchen sink

Twenty-three houses a week, on average, are falling into foreclosure in Wright County. While break-ins at abandoned houses are rare, Wright County police said burglars have ripped out appliances and even fireplaces from vacant houses.

"We've had cases where they've stolen everything -- including, literally, the kitchen sink," said Brian Johnson, a sergeant in the Wright County Sheriff's Office.

Some lenders that own foreclosed houses are headquartered in warmer regions where winterizing a house is an unfamiliar concept. Requests to shut off water are often ignored. This winter, 17 vacant houses in Otsego flooded when frozen water pipes burst.

Overgrown lawns are another nuisance. In Buffalo, the city expects to spend $12,000 to $15,000 this year on unkept lawns in developments like Rodeo Hills. The city charges $120 each time it cuts a lawn, but collecting fees on foreclosed homes can be impossible.

Monticello -- where officials estimate 25 to 30 percent of homes for sale are vacant -- is using officials who used to inspect new houses to monitor vacant properties to make sure they're maintained. The city is so concerned they've formed a housing committee to try to get families into the city's growing number of unoccupied houses -- a move intended to help make the community more attractive to prospective employers.

"Companies want to come to communities with a good work force and having a high foreclosure rates is not necessarily good for a community," said Bob Viering, president of the First Minnesota Bank office in Monticello and a commissioner of the Monticello Economic Development Authority.

Limiting growth

Some communities put the brakes on new development in time to avoid many of the troubles that ailed others. For example, St. Michael, concerned that rapid growth was taxing infrastructure and leading to crowded classrooms, began slowing development. It limited the expansion of municipal sewer and water lines and turned down developers' requests to build more homes.

Construction peaked in 2002 -- three years before neighboring communities -- when the city issued 430 building permits. Last year they issued just 55.

"At the time, I thought it was unfortunate we didn't open up more land for development," said Bob Derus, St. Michael's city administrator. "We would have had more foreclosures, a bad budget and more layoffs." Foreclosures aren't rampant or concentrated in St. Michael, and Derus says the city isn't saddled with an overhang of unsold lots or homes.

But in many Wright County communities, the rapid suburbanization was largely uncontrolled, and the changes to the county's once-rural landscape are permanent.

Six years ago, Kent Maehling and his family sold their 114-acre farm in Buffalo. Maehling's farm included one of the most scenic spots in all of Wright County -- a high ridge overlooking Buffalo Lake and the city's historic downtown. When Maehling owned it, the ridge's seven hills gently rolled from one to the other and deer ran in the meadow below. "It was as peaceful as you can imagine," said Maehling, a 59-year-old production worker.

But a developer's construction crews bulldozed the tops off the hills to make room for a new subdivision called Sundance Ridge. The changed landscape wouldn't bother Maehling so much if families were living in all the houses. But many of the newer homes are vacant.

"I don't like to see people losing their place, no matter where it is," Maehling said as he walked along the flattened ridge. "But it hurts more because I know how beautiful it used to be."

cserres@startribune • 612-673-4308 jbuchta@startribune.com • 612-673-7376

  • FROM BOOM TO BUST

    About this series: Just two years ago, Wright County epitomized the American dream of home ownership. Young families went there in droves, attracted by the cheap land, good schools and bucolic neighborhoods. But today, that dream is unraveling, as foreclosures rip through Wright County neighborhoods at a rate of 23 a week. What happened?

    Sunday: Plummeting home values means some families are trapped, unable to refinance, sell or make ends meet.
    Monday: Speculators helped drive the boom in Wright County — and the bust.
    Tuesday: Towns welcomed the development with new schools and wider roads. Now they’re paying the price.
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