Tuesday, March 31, 2009

Even the Banks are Doing It



THE NYTimes has captured another unintended consequence; Failure to Foreclose.
Imagine her surprise when the City of South Bend contacted her recently, demanding that she resume maintenance on the property. The sheriff’s sale had been canceled at the last minute, leaving the property title — and a world of trouble — in her name.

“I thought, ‘What kind of game is this?’ ” Ms. James, 41, said while picking at trash at the house, now so worthless the city plans to demolish it — another bill for which she will be liable.

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.

Anyone remember all the crap I took from the ballonistas a few years ago when I predicted that some of this real estate would have negative value? Be sure to read the entire sad article.

22 comments:

wagga said...

First think she'll do is get some matches & Colemans.

wagga said...

Bumper Swiss spaghetti harvest.

Dave said...
This comment has been removed by the author.
Jean ValJean said...

I thought I read somewhere about two years back that mortgages were written in such a way in that Banks were technically foreclosing on the LOAN and not the HOME, that the home was just collateral that could be recouped in lieu of payment..

or is my lack of sleep finally catching up with me?

segfault said...

Yes, but depending on the state, if no one buys the property at the commissioner's sale it goes back to the bank. (In states that start the bidding at zero, the bank will usually appear at the commissioner's sale to purchase the property so that someone can't buy it for $1.)

Lex said...

Here's the permalink (I hope):

NYT

The writer did not do a very good job of explaining the issue.

Related to Segfualt comment above, in CT I've seen auctions where the foreclosing lender bids less than the mortgage amount, just to get some bids in and get the property off the books.

Pleather Murse said...

So it's hers now and she doesn't have to pay? The lot's gotta have value if not the house.

Property Flopper said...

"In Jacksonville, Fla., Sylvester Kimbrough Jr. found himself caught in the limbo between foreclosure and ownership last year, 10 years into his 30-year mortgage on a $42,000 two-bedroom house. "

Damn. Around here, $42k isn't even a good down payment. I can't imagine 1) having a 30 year loan for that and 2) not being able to keep up on it.

Yeah, I know - down economy and job losses, but what ever happened to having a reserve? Keeping some money aside for a rainy day?

Mr. Outspoken said...

Shattering any impression of unity, his finance minister warned that Sarkozy would not sign the G20 communique if the summit failed to satisfy his objectives.

"(He) was very clear on that front. He said if the deliverables are not there, I won't sign the communique -- that means walking away," Christine Lagarde said in a TV interview.

Dang, that Sarkozy is going to walk away like a French army from Paris.

Lou Minatti said...

Damn. Around here, $42k isn't even a good down payment. I can't imagine 1) having a 30 year loan for that and 2) not being able to keep up on it.

I'm not gonna bother to register at the NYT to read the article, but this doesn't sound right. I don't like to denigrate Walmart workers, but someone working at Walmart can afford this house. If he's been making payments for 10 years on a $42k mortgage and suddenly can't make payments, he can sell the house. Even in Florida he'd have equity if he bought in 1999 and has been keeping current with the payments.

Wait. Did I say "equity"? Wanna bet he took out a loan or two against the house?

tj and the bear said...

$42K is a car in LA.

The mortgage on $42K? People give their kids more monthly in lunch money.

Definitely something wrong there.

Cobradriver said...

"Even in Florida he'd have equity if he bought in 1999 and has been keeping current with the payments."

There is a good probability,even with this situation he could be upside down even if he didn't pull any equity. Yes,it is that bad in areas of Florida.

Last weekend in Cape Coral a builder was selling brand new 3/2/2's,1800 sq/ft for 41-45K. 3 years old and never lived in.

So how do you value an older home in that situation? That is the problem with the market around here right know...values are all over the freakin place!

I will scrounge up some good examples from the MLS and post em up later today.

Chris

Cobradriver said...

Here is a starter search for what some decent homes are going for in this area...

http://tinyurl.com/clpvbt

Chris

Lou Minatti said...

Cobra, yes, I realize that it's possible that he could be upside down, but these are the worst examples. These are all short sales listed for $40-$50k. He's been in the house 10 YEARS, paying down the principle. It's really stretching things to say that he has nothing to show for it if he is an honest Joe just paying his mortgage.

Face it. He refi'd for goodies!

Dave said...

I work about 2 miles away from this property, and I will tell you that this is the rough part of South Bend. It's a post-industrial area, with shotgun houses built around the manufacturing plants west of the city. Most of these plants are gone, or heavily re-purposed (I'm working in one that now just handles the white-collar crowd, with a little storage warehousing).

I won't go into the fact that we have a cubicle that has bullet holes...

Median home prices in South Bend would thrill a left-coaster. I'm in a 2400 sq ft for 200K, with a half acre lot.

If anyone is interested, I'll go grab some more pics. Maybe Casey would like to jump in on the fantastic values!

tj and the bear said...

I won't go into the fact that we have a cubicle that has bullet holes...

Ah, can't let that one go! Spill!!!

Jean ValJean said...

The WSJ wakes up to the reality of the next ghetto:

Some observers believe the growth of rental property is the first in a series of steps that will transform today's exurbs into tomorrow's low-income housing

Lex said...

Some news from your home town:

John Hancock Tower foreclosed

The numbers in the article are a bit misleading but the foreclosure itself is remarkable.

segfault said...

Food for thought: AFAIK, there is no "gap insurance" on typical home loans. Here's a nightmare scenario: Let's say you bought a house for $750,000 in 2006 and put $150,000 down. The house is now worth $400,000 and you owe $550,000 on the loan (you are otherwise financially stable). The house burns or is destroyed by a natural disaster. The insurance pays $400,000 (if you have actual cash value insurance) or probably more if you have replacement cost insurance. You still owe the bank $150,000, and you have to rent or find a replacement house (which will have to be bought with no money down--you put $150,000 down in 2006).

Pleather Murse said...

Of course. Some people don't realize that a $550K loan is a $550K loan, house or no house. The house was just security for the loan. The homeowner's (sic) insurance, otoh, is for the house not the loan. The bank doesn't care about your living arrangements, only what you borrowed.

Jean ValJean said...

I come to you from the future!
These photos were taken in a deserted outlet mall in Allen, an exurb about 50 miles north of downtown Dallas:

http://www.flickr.com/photos/fatguyinalittlecoat/3396160360/in/photostream/

Granted, this mall has been vacant for about 20 years, but it still presents a pretty decent picture of what's to come.

Pleather Murse said...

Reminds me of when I drove through Port Arthur, Texas. The CBD looked like a ghost town, literally. And it wasn't some tiny village but looked like it had once been a real city with multi-story stone and brick buildings all up and down the Main Street. You could stand right in the middle of the street at high noon in the middle of the week and look up one way and then down the other way and not see any cars coming at you. No people either. The court house had a huge for sale sign on it. This was 2008.