What happens to the properties after demolition is being left up to the agencies receiving them. The bank will contribute to the cost of demolition or complete the demolitions before donating the properties.

Chicago last year contracted out demolition of 509 properties at a cost of more than $12 million, an average of $23,854 a structure. So far this year, the city has contracted for the demolition of 335 buildings at an average cost of $22,800.

A city ordinance was introduced last month to reduce the time it takes for foreclosure to six months, down from the two years now allowed. The goal is to work with banks to pass statewide legislation to speed up the foreclosure process and return the properties to the market.

Gus Frangos, the president of the Cuyahoga Land Bank in Cleveland, says Ohio has reduced the time it can take to get clear title on a property to 45 days. One key change came in the redemption process, which no longer lets a homeowner pay taxes and other costs at the last minute of a foreclosure and take back the property.

The redemption process had hung over what could be done, Frangos said, delaying loans, permits and the rehabilitation of declining properties.

The 2-year-old Cuyahoga Land Bank, a nonprofit, gets funding from penalties and interest paid on delinquent property taxes. It has demolished 500 homes, has 1,000 in its inventory and has disposed of an additional 1,500 properties by turning them over to neighbors or churches, or to contractors to rehabilitate. Frangos estimated there are 15,000 homes in Ohio's Cuyahoga County that could be considered for demolition.

There's plenty of help to do the demolition work, but Frangos said what his group does is "not a wonderful job program that will last forever."

"Demolitions were a couple of hundred a year and now could be more than a thousand," he said, "so there has been some increase in employment." But he considers demolition regressive spending, as opposed to building something that would continue to produce work.

Foreclosures' cost to families

The Center for Responsible Lending estimated that foreclosures in 2009 would cause 69.5 million nearby homes to fall in value an average of $7,200 each, for a total loss of $502 billion. The center projected that from 2009 to 2012, about 92 million U.S. families would lose an average of $20,300 in home value -- about $1.9 trillion in all -- all because of nearby foreclosures.

The center said its projections represent only property value declines caused by nearby foreclosures, not price drops associated with short sales or the slowdown in local housing markets. The projections are based on data from Credit Suisse, Moody's Economy.com and the Mortgage Bankers Association.

The Center for Responsible Lending was founded in 2002 by the Self-Help Credit Union, a nonprofit community-development lender, and is supported by several charitable foundations. Its goal is to protect "homeownership and family wealth by working to eliminate abusive financial practices."

Click here to become a fan of MSN Money on Facebook

Not everyone is 100% behind the idea of demolishing foreclosed homes.

"Demolition is not ideal," said Julie Dworkin, the director of policy at the Chicago Coalition for the Homeless. "It's preferable to rehab homes and get people back into them."

To that end, Dworkin said, the banks could do two things: make it easier to buy foreclosed homes and donate properties that are still in good shape.

Those views are echoed in Cleveland, where Brian Davis, the director of community organizing with the Northeast Ohio Coalition for the Homeless, said homes should be donated when they first come on the market. "After six to eight months, they have been stripped and aren't worth saving," he said.

Davis acknowledged that neighbors want blighted homes taken down, "but having someone staying in the home, keeping criminals away and trying to improve it would not be a bad thing."

He would like to see a program where homes could be saved in exchange for sweat equity by homeless people. His organization's plan would be to have teams of four with various skills work on the homes, with a team member moving in when it was finished. The team would continue to work until all four members had homes.