The deed shell game

My father always told me: “You don’t own a house, a house owns you.”

I never really understood it until I owned one. Gone is the ability to pick up and move. Gone is the ability to call “the super” or the landlord to deal with things like busted water heaters. Houses depreciate without constant care.

It seems the banks just discovered this fact- now realizing that all that paper they loved generating when they thought the only way housing prices could go is up- is now a boat anchor on their balance sheets. The homes that they are taking back when their loans and house of card Ponzi systems of bundled mortgages and secondary markets collapsed- now require care, and they don’t want to pay.

Of course, politicians who get big financial support from the banking industry and their lobbyists, are all too quick to not look a gift horse in the mouth:

City officials are in preliminary talks that could lead to donations of foreclosed and abandoned properties from the banks holding the mortgage loans.

Negotiating for an exit strategy from the mortgage meltdown, representatives for a foreclosed properties servicer that works with major banks met Monday with Dayton city officials to discuss the abandoned properties.

How the early discussions will shake out is unknown, but a potential outcome includes transferring some properties clogging up bank balance sheets to a land bank or some other public entity, a move that occurred earlier this year in Chicago.

In May, Bank of America announced a collaboration with the city of Chicago and a community group to give away 150 vacant and abandoned properties in and around the city. A bank spokesman said the bank agreed to pay as much as $10,000 per home for demolition, according to the Chicago Sun-Times.

“Unfortunately, many homeowners faced with unemployment, underemployment and other economic hardships, have transitioned to alternative housing situations, and in many cases have walked away from their homes, leaving behind vacant and deteriorating properties that can cause neighborhood blight,” a Bank of America statement said in May.

“To be honest with you, I think we need to walk into this idea of banks donating properties with eyes wide open,” said Aaron Sorrell, the city’s planning director. Sorrell, however, said he believes the discussions are valuable, especially if there are financial incentives the banks are willing to provide to help bring severely deteriorated properties back onto the market.“Everybody believes the finger pointing between the banks and the cities needs to end,” Sorrell said.

via Major banks may give away discarded residences to cut losses.

The real question is why banks aren’t held to the same standards as the homeowners they kicked out of these properties?

Why aren’t they forced to keep insurance on the property- at vacant home price, so that damage from vandalism and theft- can be undone? Maintenance on the houses- lawns mowed, trash picked up, paint kept to standard? Of course not. Recently 5/3rd got it in their head that one of my rentals didn’t have insurance (false) for a period of a few weeks and started charging $95 extra a month on my note- which has been almost impossible to resolve and get refunded- despite many calls, faxes and e-mails. Again- the same standards should be applied to banks.

As a token- the banks are offering up to $10k per home for demolition costs- why could they have not applied that discount to the home when it still had an owner? And of course, the banks will get to write off the highest value of the home- plus the $10K donation, and help boost their bottom line.

If our politicians had balls- they would tell the banks that any home to be turned over, that the bank did not make at least $10K in modifications to the loan while it still had a homeowner, that the bank would either be forced to bring the home to code and fair market value, or not be able to deduct a single cent as a loss from their balance statement. It’s time to protect our citizens before we protect the banks profit and loss.

The cost of foreclosures is not a shell game to be played after the value is gone- we need to be doing our deals before the home owners get kicked out, the houses go into entropy and the entire neighborhood suffers. Proactive assistance is much more affordable than reactive solutions.

Of course, if the federal government had bailed out the mortgages instead of the banks- we would have never ended up in this free fall. Had the Fed stepped in and reduced all consumer loan rates along with the prime, and capped credit cards and forced a linkage to the prime as well, we’d have seen some banks have to tighten their belts instead of the entire working class and state and local governments.

Before we accept a single house in this shell game- we need to start to work at stopping any more homes from heading down the same path. Force banks to make at least 5 modifications in the same community for every home they want to drop off their balance sheet.

End the shell game.

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