Friday, January 14, 2011

Banks Walking Away

There was quite a bit of moralizing in the press by banks and other respectable business types over the idea of homeowners who are underwater walking away from their homes. The criticism was generally that people should honor their debts and that walking away was just not what respectable people do. I, and others, argued that no business would stay in a bad contractual agreement and just pour good money after bad. Homeowners shouldn't be guilted into paying down a mortgage that made no fiscal sense. And now what do we see?

Via the Chicago Tribune banks are now walking away too,

Research to be released Thursday, the first of its kind locally, identifies 1,896 "red flag" homes in Chicago — most of them are in distressed African-American neighborhoods — that appear to have been abandoned by mortgage servicers during the foreclosure process, the Woodstock Institute found.

Abandoned foreclosures are increasing as mortgage investors determine that, at sale, they can't recoup the costs of foreclosing, securing, maintaining and marketing a home, and they sometimes aren't completing foreclosure actions.


redstateblues said...

What happens to the homes in these instances?

Andrew Oh-Willeke said...

The homes are unmarketable by the owner. The property taxes don't get paid and a property tax lienholder will eventually end up taking the house and regretting it, or if no one buys it at a property tax lien sale, it eventually becomes property of the local property taxing entities. This takes on the order of three or four years from the first default of a property tax payment.

Until then, it is an uninsured dangerous nuisance that is attractive to squatters, drug dealers, etc.

Legalized short term squatting organized by ACORN and Devil's Night were two indirect consequences of that kind of thing in Detroit.

Some cities adopt nuisance ordinances which would fine the owners of record, in this case the foreclosed upon families or more often, foreclosed upon slumlords.

Buying the properties up at a pittance as blight under eminent domain laws is also an option.

redstateblues said...

Thanks for the response and the info, Andrew.