Jul 22

The Milwaukee Journal notes that  Lenders are abandoning foreclosured properties

http://www.jsonline.com/watchdog/watchdogreports/50548282.html

“Rodney Lass figured his days as a homeowner were over when he was hit with a foreclosure judgment more than a year ago.
He stopped rehabbing his two-story Bay View home and moved on. [snip]

The foreclosure, however, failed to go through after the California-based lender decided it didn’t want the gutted house. Lass said he found out for certain that he still owned it from the Journal Sentinel.”


Tim’s comments


There is another twist, probably worse for the community than abandonment by the lender. An emerging phenomena is owners of properties in lower income areas are being sued for the balance of the mortgage, not as a foreclosure but as a large claim action. The lenders are seeking only a money judgment against the owner and are not asking the court to give them title to the property. The only option at that point for many owners is bankruptcy.

Milwaukee and other cities brought this upon themselves in a way. The cities responded to the foreclosure crisis by enacting aggressive legislation, which makes it expensive for the lenders to hold foreclosed properties.

Lenders realize the risk to them outweighs the benefit and therefore they walk. Remember that the municipal penalties are imposed on the servicer, while the debt typically is not owned by the lender but was securitized and sold.

Under these ordinances the risk and expense is also passed on to local companies that service the foreclosed properties. Our company has turned down offers of two large contracts to handle REO’s as we consider the rules untenable.

The article quotes the City Attorney’s office stating they are going after those who had originally purchased the properties and had thought they lost it in foreclosure. Unfortunately most folks in this position have nothing left, having lost everything trying to hold on to the end. Many of these properties have no value as they were stripped by former owners and scavengers long ago. This leaves the city to foreclose for taxes on worthless empty shells. The owners that file bankruptcy delay the process considerably.

It is not just milwaukee. Back in May Guaranty Bank of Irvine CA bulldozed 16-20 new construction homes rather than face daily fines imposed by the community of Victorville. http://tinyurl.com/kwu2sy

The problem, at least locally, grew out of a dislike of landlords and a thought that everyone should be a homeowner. This resulted in mortgages that no one could have ever expect to be repaid. But lenders didn’t care as it wasn’t their money. The lenders packed the loans and shipped them off to some school teacher’s pension fund somewhere.

Remember as long as the lender did not foreclose they still have a lien against the title. This creates “zombie ” real estate. It 
looks like a house on the outside, but it can never come back to life as long as there are title problems.

So what is the answer? Now there is a question.

In response to this posting on the ApartmentAssoc@YahooGroups.com list, one reader asked:

Why is this bad? Money collected from out of state banks makes our  taxes go down!!

My response was in the long term, it’s very bad for us.

When a few lenders start dumping houses for a few thousand dollars to limit their DNS exposure that makes your house in the same neighborhood worth… I don’t know… around a few thousand dollars? Ultimately property taxes will have to go down in those areas.

When the market starts to come back national lenders will remember the pain they suffered here and simply won’t write in our market. Why would they? They are not obligated to write in Milwaukee.

This will cause Milwaukee and other communities that took aggressive action against lenders to lag the rest of the nation in recovery.

And by the way, the only way our taxes can go down is if our governments’ spending goes down.

~~Tim Ballering

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