Punishing Foreclosure Victims--Some Banks Take One Last Shot

By
Services for Real Estate Pros with TheHousingGuru.com

In an article today in the Milwaukee Journal Sentinel, it was reported that it’s becoming commonplace for lenders to refuse to take title to some properties following foreclosure. Why would a bank bother to foreclose and then abandon the property? It’s simple economics. Many of the homes just aren’t worth the bank’s efforts. But then, why would they foreclose? And who ultimately owns such properties? The answers are often as confusing an illogical as the creation of the subprime collapse that precipitated the problem.

 

What’s happening is a crime—perhaps not legally, but figuratively. Sometimes it’s a crime against the very people who have already suffered the most; and other times it’s a crime against neighborhoods trying to recover from issues of high crime and drug dealing. In the words of Catherine Doyle, attorney with the Milwaukee Legal Aid Society, “This is just the meanest and nastiest thing (lenders) could do. Even more profound is the terrible damage to the community.”

 

Abandoned homes become a blight on neighborhoods, havens for drug and criminal activity, and create fire and safety hazards. No longer sources of tax revenue, such homes are a drain on struggling cities resources, and ultimately cost taxpayers thousands more when condemned and bulldozed.

 

The procedure, known in the trade as “walkaways,” is a growing problem, especially for cities, where most are pressed for revenue. The mortgages on these homes, the great majority of which are subprime, were often made by now-defunct mortgage brokers, and are being foreclosed upon by loan servicers on behalf of investor groups often thousands of miles away. And, unfortunately, there appears to be no solution to the problem.

 

Have banks lost their hearts, or is it they never had one? The image of the friendly neighborhood banker was perhaps always a utopian vision; but what they’re doing is egregious on a monumental scale. Throwing people out of their homes, only to have those homes bulldozed later, is not only inhumane, it’s sheer stupidity. Once the owner is forced out, the home falls in to disrepair, may be vandalized, and everyone loses. And, the irony is; when the bank walks away, the original owner is still on the hook for taxes, boarding-up and clean-up fees that can run into the thousands of dollars. It’s a game of no winners.

 

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Re-Blogged 9 times:

Re-Blogged By Re-Blogged At
  1. Frank D'Angelo 07/13/2009 09:20 PM
  2. Jen Anderson 07/13/2009 10:52 PM
  3. Kimberly Koehler 07/14/2009 01:24 AM
  4. Vicky Henry 07/14/2009 08:32 AM
  5. Matt Yogerst 07/14/2009 09:01 AM
  6. Yogesh Karki 07/14/2009 09:19 AM
  7. Penelope Zeller 07/14/2009 11:04 AM
  8. Amanda Wernick 07/14/2009 11:35 AM
  9. Vick Pacheco / Luxury Homes & Lifestyles 05/31/2010 03:33 PM
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Rainmaker
453,503
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Lyn - No, as I stated in the post, I don't see a solution. One thing that would help is to force banks to take possession of properties on which they begin foreclosure proceedings. Starting the proceedings drives people out and opens the door to the thieves and vandals. 

Jul 16, 2009 09:58 AM #191
Anonymous
Jo Baldridge

I have never heard of Bank wlaking away - I can see how that might be the case however, I agree with most that as these banks area willingly accepted bail out money these undesired forcelosed homes are part of the package.

That said, IF this is becomming a prtaice the foreclosed homeowner (lawyer of said person) should develop a release of title document that they them selves can record, there by ending their responsibility toward the property.  Much in the way I would record the release of liability for a car or mobile home sale.  I always advise collecting the nominal recording fee from the new buyer YET sending in the form myself to ensure ite recording.

The government is not helping or recognizinng the issue - Do they have too much else distracting them? or did they just "tip their toe in the water"  sort-of-speak, and go on to something else - without thoroughly investigating the ramifications of the entire situation.

Bottom line I hope some attorney or whomever comes up with with another recordable form so that the foreclosed party can propect themselves instead of assuming the bank is reording new ownership.

 

Jul 16, 2009 10:46 AM #192
Rainmaker
453,503
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Jo - The local governments can pass legislation to force lenders to take possession of properties on which foreclosure proceedings have begun. That's where it should begin. And, if I were an owner, I might wait to move out until I was certain that the bank really wanted the property.

Jul 16, 2009 11:51 AM #193
Rainer
66,323
Barbara Singleterry
S Squared Realty Group - Roseville, CA
Honesty - Integrity- Loyalty

This seems very sticky.  Add to this problem homes that are officially foreclosed with the bank taking ownership and left vacant for over a year without being placed back on the market.  It would seem to make much better business sense to follow in the Savings and Loan meltdown footsteps as mentioned above and have the banks who hold too many of these non-performing properties fail and then go ahead and allow the market to drop to its level.  

Our country has survived real estate crashes before, 1890s, 1930s, 1980s with the S&L mess and most recently in the early '90s.  I am not sure why we are so afraid this time unless it is because of the exotic securities that have been tied to subprime and even prime mortgages that are now going downhill due to job losses.

The obvious solution is having the local counties follow up on foreclosures and forcing the lender of record to file title in a timely manner.  Maybe we can lobby our county governments to enact legislation or binding rules to that effect.

As far as the abandoned houses, I know numerous people willing to purchase these homes, fix them up and resell them at a fair rate or lease them out as income properties.  This helps both the local economies with property taxes and keeps the neighborhoods in good repair.  It is irresponsible of the lender to not put the foreclosed on property on the market.

By the way, I own my home in an area with numerouse short sales and foreclosures.  Yes, my property values have dropped, but I am saving on the property taxes and I am willing to keep the property as a rental if I choose not to live in it any longer.

I view property for the long term.  There is only so much land to go around and eventually it will all go back up.

Jul 16, 2009 02:55 PM #194
Rainer
9,927
Mark Moen
Realty Executives Experts - Elkhart, IN

I am not one for the bailouts but in Milwaukee where I have originated loans, invested in rental properties and now sell these foreclosures I think it is only good business for the banks to walk away. Not only should they walk away but not lend in this city or others.  The bank is just a big golden goose which is plucked; raped, pillaged and plundered.  Here is what happened in the City of Milwaukee.  During good times the City, FNMA, Milwaukee Bucks, Brewers, Miller Brewery, Harley Davidson... all provided grant money to help the city with its re-investment progorams and such.  Creating these targeted areas for grant money, forgiveable loans and so on.  This created a fenzy of first time buyers and investors.  Some of these investors fled the dot com crash of the market and went into real estate investing into these slummy areas as the grant money was available.  Well then you need the private lenders to provide the large first mortgage on these properties. 

We need to look at the city and how it is being managed.  They conjured up these programs, strong armed the local companies with tax breaks for their benovolence, then we see a massive deregulation pushed by the federal government pushing the lenders to lend in these places.  They were slums and they are still today.  Often times I come across a property that sold for $120,000 to $140,000 in one of these areas and a bank lent on it because there were investors.  What hurt the investors then and what hurts the banks today is the code ordinance which penalizes the private sector with small realtively immaterial issues on these properties.  When an investor has his own focus most likely interior needs of tenants he can not afford the exterior repairs. City starts fining agressively, he can not keep up and foreclosure is inevitable.  Now the bank inherits the problem of the code issues and thus starts getting the fines. 

The city encouraged the investment with the grant money they received, they then start punishing those who invested by agressively going after them with fines not to mention they are receiving taxes on these proeprties.  And after the investment which drove prices from $30,000 average to $120,000 average the city raises assessments to collect higher taxes.  Where is the city putting this new found revenue.  It surely is not back into the neighborhoods that just had new investment no they create more revenue by punishing the homeowners with the code violations.  These investors and the banks did their part to invest into the slummy area to make it better.  I owned one of these properties and the city fined me for not having grass in the yard due to vagrants and vandals.  My tenants did what they could and the police, no response.  The result I received hefty fines for code violation.  I sold out of the city.  Before I did so I went to my court hearing and one investor who had 20 some properties told the judge that he would just let his properties go to foreclosure.  His pockets deeper than mine but he like me knew that there was no business sense in operating in that city.  Who gets hurt and who is doing the hurting is the government who had to bail out the banks for what they created a big mess.  The bank is an easy target because it has the gold but that gold is all the depositors, bond holders, stock holders...  They created a big pile of money for retirenment and investment or rainy day, christmas funds or what have you and those funds of all those people are the target to be plundered by lawyers and law keepers. 

Blame the city, the county, the state and the federal government.  Look how fast they gave the bailout now look how fast they divert the blame from their own doing.

Jul 16, 2009 04:23 PM #195
Rainmaker
1,240,401
Evelyn Johnston
Elkhart County Subdivisions, LLC - Elkhart, IN
Super Agent, Probably the Best Agent in the Galaxy

Perhaps if the REALTOR(r) knows of a particular home headed this way they could talk to the bank about donating the home to a charitable organization.

Jul 16, 2009 06:15 PM #196
Anonymous
Sally Rackey

Again I say "quitcherbichin," step up to the plate, grab and fix the problem on your level.  I don't care if it's mowing the grass of an abandoned house, providing meals to a neighbor and her children living in an almost foreclosed house,  hiring her or her children for what you can afford to pay...

Hey you out there...we're at the bottom...we are in a bigger DEPRESSSION THAN 1930...get your heads out of the sand...stop blaming everyone and anyone...

Grow your own food, make your own soap, turn off your AC, run the computer when you need it...ask your friends, family and co-workers for help.  And you co-workers GIVE what you can. You may be next in line.

Oh and yeah, we in this business need to quit trying to repay ourselves for the monies we've lost over the past 4 years.  We've always given up portions of our commissions to make a deal work.  Maybe now we to seriously consider a new way of being compensated.  How does a bucket of potatoes grab you?  Fees for services instead of commissions, or barters, or trades, etc. 

And hello you lenders...you might want to consider the idea that if 70% of homes are sold via Realtors, you should pony up with similar programs for your borrowers.  How about gathering half interest, quarter community service and quarter in goods?  I'll leave it up to you to figure than one out since money people are always assumed to be smarter than we dumb plebians.

Well, just wanted to get your attention. 

Sally Rackey, RealtyOne Alliance, Sarasota FL

Jul 16, 2009 09:19 PM #197
Anonymous
Dianne Camella

  As realtors, we all know that the banks are mainly responsible for where we are today with their loose lending laws. However, it occurs to me that we as the realtors need to take action and do something to try and set it straight.  I will start with prayer to the most powerful entity I know, Jesus,  and follow up with a letter to my local representative to see if we can start the ball rolling

Jul 17, 2009 06:26 AM #198
Anonymous
Mark Moen

Sally Rackey, RealtyOne Alliance, Sarasota FL 

Thank you about quit your bitchin.  My wife and I are agents who do what you describe.  I give charitably as well to help the poor.  We do a lot of foreclosure business and we give back.  The part about cutting your neighbors lawn is close to my heart as it keeps the government out of the business of being the nanny state.  A common complaint against properties is the way the neighbors yard looks and the neighbors call the city rather than take matters in their own hands, they rather pay the government to employ one more controlling agency rather than live free and sweat a little.  Our field crews have mowed not only our lawns but the neighbors where there are elderly and single moms, they have cleared snow for them as well and they do so anonymosly.  It took one elderly lady almost two years to figure out one of our crews mowed her grass and plowed her driveway and removed snow from her walks and she lives across from our office.  We believe in community building from the example of the immigrants who came here and had their homes built through the practice of home raising.  It is the best form of charity as it brings a community closer together and does not involve the dollar, it involves pure intention.  Now my wife and I do not make our own soap we do raise and grow our own food.  What we can not consume goes to food bank.

Now with regard to banking and real estate, the sub prime or predatory lenders were harshly regulated and as a former loan officer I never originated a sub prime loan as I did not like them but they did take the risk to help someone purchase a home.  There are free economic principles that play where a lender and borrower meet.  Government got involved and reuglated them out and then required good conservative lenders to fill the void.  The deregulated the conforming lending of FNMA and FHLMC then pushed them to fill the void of the sub prime by lending to the sub prime borrower.  The high rates of sub prime account for the risk to modify the losses but for the conforming lenders they were forced to expand their risk position without the benefit of charging the proper amounts to take on that risk.  This is what we got when socialism of government intervention happens in the free market.  I never was one to feel bad for the banks but I forget we are all vested in them one way or another as we have various types of deposits in them so they can operate responsibly with our money.  They can not guard our money when the government forces them into a risk position.

As stated in the first paragraph volunteer to help the neighborhoods and get the government out of the private property.  In my prior response I mentioned code enforcement or most commonly referred to as department of neighborhood services.  There is no service but a disservice as when we call them to deal with a neighbor we put undue stress on that neighbor's already stressed situation and cause them to the sheriiff sale.  Bank takes property and it just spirals down from there.  Get out and help that neighbor for you own pocket's sake as well as your own liberty.  Afterall once the government meets demand by employing enough enforcement people they never downsize them out.  Let us eliminate this demand and force the government to downsize.  Let us eliminate this demand and take actions for our liberties and build our communities.  Let us release ourselves as real estate professionals from greed and avarice and start legitimizing our profession and that is to protect and garranty that private property(real estate) stays privately owned and regulated.

Jul 17, 2009 08:03 AM #200
Anonymous
angry investor

If I was an investor and I found out my bank had performed millions of dollars in walk aways instead of at least getting some of the equit back or at least restructuring the loan so at least I can get some profit back which is better than no profit I would wonder if a class action lawsuit against a bank was in order.  However most of the investors are not individuals they are institutions whose customers are individual investors in mutual funds and other investment vehichles.  That being said some of the big pension funds for teachers have sued and maybe they should be paying attention to this.  This is my consumer opinion!

Jul 17, 2009 08:04 AM #201
Rainer
22,438
Antoinette Murphy
RE/MAX Atlantic - Absecon, NJ
GRI

You've got me shaking my head.

Jul 17, 2009 08:40 AM #202
Rainmaker
6,546
Bob Bloom
Keller Williams Realty - Vancouver, WA

Wow.... I thought I'd heard it all. There ought to be a law. If they don't want the house just give it to the homeowner..

Jul 18, 2009 08:08 PM #203
Rainer
57,443
Tatyana Sturm
Exit Realty DTC - Aurora, CO
Denver Realtor, GRI, Denver/ Aurora CO Relocation

Good points, it is so important I think to try and do a short sale on these properties.  Encourage the home owner to stay in the home until the bank approves the short sale.  I have ran into some sceanrios that the home has been forecloses on for a couple of months and the owners or previous owner I guess are still living in the home.

Jul 20, 2009 01:28 PM #206
Rainer
4,399
MARYANN SUMARAGA
Vandyk Mortgage Company - Groveland, CA

LOts of good information, after reading 15 minutes of post... I find myself shaking my head... blood pressure up, and sighing.

Jul 20, 2009 09:53 PM #207
Anonymous
Wendy Valko

I myself have not seen this happen in Michigan yet.  But, knowing the redemption period, then the eviction process.  Why would one move out?  Just as Lynn stated, it is up to the municipalities to keep this within their ordinance.

Jul 21, 2009 06:12 AM #209
Anonymous
Sybil Campbell

I totally agree with you about this problem.  If this situation is not addressed soon, crime rates will definitely go up in areas where houses are abandoned.

Jul 21, 2009 11:00 PM #210
Anonymous
Rob Jenson

the only way to fix it is for the bank to quit asking for all this paperwork from sellers on short sales and start approving short sales in a matter of days.  Who cares if they "qualify" for a short sale.  The fact is they are not paying their mortgage and you will get the house back anyways.  If the bank is worrying about the "unqualified" slipping through the cracks, well, they already are.

Jul 24, 2009 01:22 AM #213
Anonymous
Anonymous

Banks are unfeeling, unemotional corporations - doing whatever is best for their bottom line.  That's it.

Jul 27, 2009 02:40 PM #214
Rainer
265,481
Vick Pacheco / Luxury Homes & Lifestyles
Empire Network Realty / Luxury Homes & Lifestyles - Orlando, FL
REALTOR, VickTheRealtor@gmail.com

I have never heard of Bank walking away, but you have to wonder, there is one house in our neighborhood, it foreclosed two years ago and the delinquent owners still live in the house. 2 YEARS! That is insanity.

May 31, 2010 03:32 PM #216
Rainer
13,157
Violetta Polyakov
Florida Home Consulting - Мы Говорим По Русски - Boynton Beach, FL
Broker/Owner

The dumps they are bulldozing are located in crime ridden neighborhoods where houses are used to sell drugs, have meth labs in them, and so on.  Few time REOs that I received from the bank would appraise for $6,000 - $8,000 and it would cost bank more to sell them then to demolish.  The demolition is going on in Cleveland, Chicago, Detroit, in really really bad parts of town, so it is a good thing for the community to get rid of this garbage and go through government stabilization program to get the community up and running again.  It sounds heartless, but makes a lot of sense if you think about it.

Aug 22, 2011 10:32 PM #217
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