You know it’s bad when it makes more sense for banks to walk away than to foreclose on properties. Property values have fallen so much — and the market is so bad in some areas — that banks are increasingly finding that foreclosure just doesn’t make sense. While it sounds like this would be great for homeowners, that is not necessarily the case. In fact in some instances the home will get demolished, and the homeowner stuck with the bill. For more on this, read the following article from Property Wire.
Banks in the US are walking away from foreclosed property because it is worth less than the cost of maintaining it or selling it.
The new trend is set to increase as the foreclosure tide shows no sign of receding despite President Obama’s property stimulus plans.
But it means more difficulties for hard up property owners as they are faced with having to keep the property. They are receiving letters saying that the sheriff’s sale of their property has been canceled and if they don’t maintain it the property will be demolished by the authorities and they will be liable for the bill.
“It is what some of us think is the next wave of the crisis,” said Kermit Lind, a professor at the Cleveland-Marshall College of Law and an expert on foreclosure law. In Kansas City, Rachel Foley, a lawyer who handles housing cases, said bank walkaways were “a rare occurrence two to three years ago but we’re seeing them dumped more and more at the moment.”
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The situation is being made worse in some cities where officials are clamping down on abandoned foreclosed properties. In Buffalo, New York state, officials said the problem has reached epidemic proportions in recent months. The city sued 37 banks last year, claiming they were responsible for the deterioration of at least 57 abandoned homes.
The soft housing market and the vandalism that often occurs when a property sits empty are the two main factors influencing the mortgage holders’ decisions to walk away, according to Larry Rothenberg, a lawyer for Weltman, Weinberg & Reis, one of the larger creditors’ rights firms in the country.
“Often when the foreclosure starts out it’s a viable property but by the time it gets to a sheriff’s sale it might not have enough value to justify further expense. We’ve always had cases where property was vandalized or lost value, but they were rare compared to these times,” he explained.
The problem seems most acute at the bottom of the market, properties that were inexpensive to begin with, and with investment properties, where investors and banks want speedy closure by writing off bad loans as losses. Banks and investors typically lose 40 to 50 percent of their investment on every foreclosure.
Guy Cecala, publisher of Inside Mortgage Finance, an industry newsletter, said some properties had become such liabilities for investors that it was not even worth holding on to them to strip valuable fixtures, like kitchen appliances, toilets and hardware.
“The whole purpose of foreclosure is to take title of the property, sell it and recoup what money you can. It’s just a sign of the times that things are so bad no one wants to take possession of the property,” he said.
This article has been reposted from PropertyWire. View the article on PropertyWire’s international real estate news website here.