Real Estate Collapse Entering New Phase: Banks Refusing to Repossess Abandoned Homes, or Even File Foreclosures
October 19th, 2009Not only are there no bids in some markets, the accumulation of property taxes means that some properties have negative valuations, like a derivative trade that’s gone bad.
Via: Dayton Daily News:
Nobody is sure exactly how many bank walkaways are occurring. For various reasons, they can’t be identified in searches of public real estate and court data without individually pulling case files, experts say.
But nobody questions that they are on the increase.
David Rothstein, a researcher with Policy Matters Ohio, summarized the way they occur like this:
* The lender files a foreclosure, gets the foreclosure judgment in court, takes the property to sheriff’s auction but doesn’t bid on it if no one else does.
* The lender files as above, gets the judgment, sets the sheriff’s auction, then cancels the sale at the last minute.
* The lender files as above but then never requests a sheriff’s auction.
* The lender doesn’t even bother to file foreclosure.
All of these actions leave the foreclosed property in the hands of the original owner who, in many cases, has moved out and is unaware the lender hasn’t taken it.
One indicator of the trend in walkaways is the gap between the number of foreclosure filings by lenders and the number of properties actually sold at sheriff’s auction.
A Dayton Daily News analysis of Montgomery County records found that, through September, foreclosure filings are on a pace this year to decrease by 8 percent. Meanwhile, foreclosed properties sold at sheriff’s sale will be down more than 21 percent. Over the three years an average of 2,500 foreclosure filings have not made it to sale at auction.
A foreclosure filing may not make it to auction for a number of reasons, including owners coming up with the money or lenders working out deals with them. But, Rothstein said, the growing difference between filings and sales suggests walkaways are playing an increasing role.
“When we look at the numbers, it’s not like thousands of people are getting loan modifications that would lift them out of the foreclosure process,” he said. “So what’s happening to those other properties?”
Another indicator is the falling number of properties that banks are repossessing, said Daren Blomquist, a spokesman for RealtyTrac, Inc. Data from RealtyTrac shows that bank repossessions, called REOs, have been steadily declining in Montgomery County over the last three years. The 2009 monthly average for repossessions is only 43 percent of what it was in 2007, a newspaper analysis of the data show.
“There’s something happening once the properties enter foreclosure that is at the very least slowing down the process,” Blomquist said. “Maybe not to that (Montgomery County’s) extreme, but we’re seeing a similar pattern nationwide.”
Another indicator is the number of canceled sheriff’s sales, said Chuck Rodersheimer, a Dayton attorney who specializes in bankruptcy and foreclosure cases. ZIP codes like 45405 and 45406 northwest of downtown Dayton illustrate the problem, he said.
A newspaper analysis of sheriff’s sale data found that 45406 had 721 cancellations since 2006, by far the most of any county ZIP code. The 45405 ZIP was second with 594 cancellations.
Some of those neighborhoods have a lot of old, deteriorating housing stock, many of which are for sale or vacant, and accumulating unpaid taxes. The cost to the bank for taking responsibility for those properties, he said, is going to far outstrip anything they could hope to get out of selling the homes.
The sheriff’s sale cancellations in those neighborhoods, Rodersheimer said, are unlikely to be a result of negotiations between the owner and lender. “It’s going to be the fact that the bank didn’t want the property any more.”
In some instances, lenders don’t even bother to file a foreclosure. Figures by RealtyTrac released this week show foreclosure filings in the greater Dayton area are down almost 21 percent.
John Carter, housing inspector with the city of Dayton, finds the decline in foreclosures “very scary,” because houses are continuing to go vacant.
For every 100 houses that he orders boarded up, he said, 40 to 50 properties have a mortgage but no foreclosure filed. When he contacts the banks, they sometimes tell him they have no plans to foreclose.
“That makes it look like the foreclosure numbers are going down, but in actuality the banks are not even starting foreclosure,” Carter said. “So there’s no number to track now.”
So let me get this straight, property taxes accumulate, so if in 5 years nobody has bought a particular property, there is no way it can be sold, since no buyer will be willing to pay off back taxes in addition to the purchase price. How can the bank avoid responsibility for the taxes, ultimately, since the property could not have a clear title? This *seems* like a dumb move for a bank to make. They’ve already had to write off getting their lent money back. Why not sell it? Is this just a way to keep the loss off the books a little longer? How can all this play out in the end? Will the bank pay to demolish the house? Unlikely, taxes still have to be paid on vacant land, although not as much. Will the jurisdiction the home is in be stuck with it? This looks like the most likely scenario to me, with the municipality agreeing to take over the property on the condition of waiving the back taxes, just so they can get a tax paying body in the house. But with fewer people who can afford a house due to the shitty economy, does that mean the new “growth” industry is going to be being a landlord?
Can some reader help make sense of this? Is there a more likely future than what I am imagining?
We must observe a Jubilee. All {money} debt must be forgiven, cancelled, repudiated or whatever you want to call it. Productive land {tools} should be divided up and given to those able to produce. When money and wealth no longer corelate it is time for a new game.
http://thearchdruidreport.blogspot.com/2009/10/metastasis-of-money.html
This is too weird to figure. Is it that the feds actually own the property, because of Fannie mae and Freddie Mac? I don’t know I am guessing.