Banks are not actually taking possession of the property:
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.
The so-called bank walkaways rarely mean relief for the property owners, caught unaware months after the fact, and often mean additional financial burdens and bureaucratic headaches. Technically, they still owe on the mortgage, but as a practicality, rarely would a mortgage holder receive any more payments on the loan. The way mortgages are bundled and resold, it can be enormously time-consuming just trying to determine what company holds the loan on a property thought to be in foreclosure.
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.
“It is what some of us think is the next wave of the crisis,” said Kermit Lind, a clinical professor at the Cleveland-Marshall College of Law and an expert on foreclosure law.
First reaction: pass laws which state that if a financial institution refuses to take possession of a foreclosed property, it immediately becomes the free and clear property of the foreclosed debtor. And I mean, make it mere hours before such a forfeiture occurs. We can’t play these games – I, for one, note about 8 properties in my neighborhood which appear foreclosed (run down, over grown yards, and the like) but no attempt being made to sell…now I wonder if we’ve got abandoned properties? I found it odd that in May a realtor advised 34,000 homes on the Vegas market, and then a different realtor say 17,000 homes on the market in June…we didn’t sell 17,000 houses in June in Las Vegas. Are the banks just bagging it? This article makes me think they might.
Longer reaction: As I’ve said for some time now, we need what amounts to a bankruptcy reorganization of our national housing market. It will take some primo number crunchers to work it out, but mortgage amounts – by zip code – will have to be reduced to match current market values, and then the loans re-worked based upon the current value of the house. Its a lose/lose situation for everyone (for instance, I’d lose the approximately $130,000 I’ve paid for this house to date, the bank would lose a great deal of future interest as my mortgage amount would have to drop by 50% or so to bring it in line with current market values). Its lousy, but I can’t think of any way to really get us out of this mess – we have so many millions of houses “upside down” in relation of loan balance to house value that the temptation will become massive for people in that situation to just walk away…in which case, the banks would get even less than they’d get with a “cram down” on existing loans.
Inescapable truth: any effort to prop up this situation in the hopes that housing values will recover is the most asinine of wishful thinking. It is not foreseeable that housing prices will reach back to their 2005 level over the next ten years, and may be 20. We have to think anew and act anew.
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