Please consider Banks Starting to Walk Away on Foreclosures.
Mercy James thought she had lost her rental property here to foreclosure. A date for a sheriff�s sale had been set, and notices about the foreclosure process were piling up in her mailbox.Abandoned Homes, Abandoned Cities
Ms. James had the tenants move out, and soon her white house at the corner of Thomas and Maple Streets fell into the hands of looters and vandals, and then, into disrepair. Dejected and broke, Ms. James said she salvaged but a lesson from her loss.
So imagine her surprise when the City of South Bend contacted her recently, demanding that she resume maintenance on the property. The sheriff�s sale had been canceled at the last minute, leaving the property title � and a world of trouble � in her name.
�I thought, �What kind of game is this?� � Ms. James, 41, said while picking at trash at the house, now so worthless the city plans to demolish it � another bill for which she will be liable.
City officials and housing advocates here and in cities as varied as Buffalo, Kansas City, Mo., and Jacksonville, Fla., say they are seeing an unsettling development: Banks are quietly declining to take possession of properties at the end of the foreclosure process, most often because the cost of the ordeal � from legal fees to maintenance � exceeds the diminishing value of the real estate.
In Ms. James�s case, the company that was most recently servicing her loan is now defunct. Its parent company filed for bankruptcy and dissolved. And the original bank that sold her the loan said it could not find a record of it.
In Buffalo, where officials said the problem had reached �epidemic� proportions in recent months, the city sued 37 banks last year, claiming they were responsible for the deterioration of at least 57 abandoned homes; the city chose a sampling of houses to include in the lawsuit, even though the banks had walked away from many more foreclosures. So far, five banks have settled.
In Kansas City, Rachel Foley, a lawyer who handles housing cases, said bank walkaways were �a rare occurrence two to three years ago.�
�We�re seeing them dumped more and more at the moment,� she said.
In Ms. James�s case, it has been impossible to determine who canceled the sheriff�s sale, since her last mortgage holder went out of business. Even the city clerk�s records did not provide an answer.
�Nobody has any idea who owns what or who�s responsible,� said Judy Fox, Ms. James�s lawyer at the Notre Dame Legal Aid Clinic. �It�s a very common story.�
The above tactics are fueling something I talked about last week in America's Abandoned Cities.
Property abandonment is getting so bad in Flint that some in government are talking about an extreme measure that was once unthinkable -- shutting down portions of the city, officially abandoning them and cutting off police and fire service.Homes in Flint and other such areas, have indeed fallen to their true value (less than zero). No one wants them at any price. Moreover there's little incentive for anyone to do anything about this. Thus the discussion involves "shutting down portions of Flint, officially abandoning them and cutting off police and fire service."
Our throw-away society has effectively reached a new level of efficiency: the throw-away city.
Walk Away Recap
I have talked about Walking Away on many occasions. Here is a sampling.
- January 28, 2008: 60 Minutes Legitimizes Walking Away
- January 29, 2008 The Business of Walking Away
- February 07, 2008 Moral Obligations Of Walking Away
- February 15, 2008 Businesses Advised To Walk Away
- April 15, 2008 Walking Away: The Next Mortgage Crisis
- March 25, 2009 America's Abandoned Cities
Everyone is looking for a way out. Some are angry that home owners are waking away from houses sticking banks with properties. What about banks walking away from houses? What about cities abandoning sections of cities?
Imagine praying to be foreclosed on then having the bank walk away from the foreclosure sale because your home is no longer an asset to anyone. You don't have to imagine it, it's happening.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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