Research has linked concentrated foreclosures with negative neighborhood impacts from those foreclosures‑increased vacancies and increased crime (Haider and McGarry 2005; Immergluck and Smith 2006; Immergluck and Smith 2006; Immergluck 2010; Mallach 2010), decreased property values (Haider and McGarry 2005; Immergluck 2010; Mallach 2010; Immergluck 2011), and potential long-term neighborhood decline (Li and Morrow-Jones 2010). These outcomes impact the longer-term trajectory of the neighborhood. It is usually assumed that the negative neighborhood impacts documented in the literature are a necessary and unpleasant side-effect of a foreclosure. However, if sold similarly to properties in the regular market, foreclosures themselves logically should not cause such negative impacts as reduced neighborhood home values and neighborhood decline. Data supports this logic showing that some foreclosure sales do not result in negative impacts. Immergluck and Smith found that Federal Housing Authority foreclosures did not have a statistically significant impact on the prices of neighboring properties (Immergluck and Smith 2006b). The identified difference in those sales was the institution selling the properties, suggesting that differences in institutional foreclosure sales practices may create the negative spillover effects in neighborhoods.

Using data from Boston, this paper will make the case that the loss mitigation and asset management practices of the servicer and their contractors (including protocols, organizational arrangements and decision-making), distort the market because it reduces the buyer pool and increases the length of vacancy and likelihood of abandonment of real estate assets. Additionally, errors in the secondary mortgage market process exacerbate the neighborhood problems caused by servicer foreclosure sales practices. With the foreclosure crisis continuing to impact neighborhoods and communities across the country, policy makers are faced with the challenge to find the most effective ways to respond. Cities around the country attempt to find ways to mitigate the impacts of foreclosures on their neighborhoods: levying fines, using eminent domain to purchase foreclosed buildings, destroying vacant foreclosed properties. Understanding the role of the foreclosure sale process provides important insights that can help fine-tune existing policies and suggest new policies to prevent the loss of community assets as a result of foreclosures.