Banks Walking Away From Foreclosed Homes
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In late 2008, the city of South Bend, Indiana (where I grew up) began to be confronted with a problem it had never seen before in its entire history:
Banks were just walking away from homes they had already sent to foreclosure.
This has since come to be known as 'dumping', and it's a trend that's spreading fast.
In other words, when a house is 'dumped', the bank that held the mortgage initiates foreclosure proceedings, evicts the tenants or homeowners, then walks away, leaving the house in legal limbo and the problem of what to do with it in the hands of the city.
In some cases, the properties in question go to sheriff's sale once but do not sell. In other cases, the properties in question are never scheduled for sheriff's sale because the bank deems the foreclosure process more expensive than the value of the property itself.
The city of South Bend first learned of this growing trend towards 'dumping' houses when it began to send letters to the mortgage holders demanding money for the demolition of vandalized rental properties.
Many of the (former) owners of these properties had heard nothing since the bank sent them a foreclosure letter. All assumed, understandably, that the house no longer belonged to them.
In most cases, between 18 months and two years pass between the day the foreclosure letter is sent to the homeowner by the bank and the day the letter from the city demanding demolition money for the 'dumped' house arrives; time enough to for vandals to strip out all the plumbing and copper wire and sell it for scrap, break out all the windows, and in some cases set fire to the structure.
After discovering a property has been 'dumped', the city attorney typically begins a wild goose chase looking for someone who will admit ownership and pay the demolition bill and, sometimes, the back taxes.
Usually the bank has removed their name from the lien and refuses to accept any liability. In some cases, homeowners have been forced to hire an attorney to draw up a quit claim deed to 'give' the home back to the bank which now denies ownership.
Banks are able to do this because of an odd legal loophole. Until now, no one ever imagined that a property could be worth so little that a bank would use that loophole to dump the property. In the past, any property was usually worth something.
In fact, many dumped properties are indeed worth much more than they can be sold for in today's market, but the banks don't want to carry the costs of keeping the properties on their books and maintaining them until the real estate market recovers.
In Indiana, foreclosure is not legally complete until the home in question is sold by the sheriff.
No one ever had to deal with a situation in which banks didn't bother to complete foreclosure by selling off the foreclosed home, because banks always wanted as much money as they could get back and so always completed the sale.
But today, so many properties in the rust belt cannot be sold for what it costs to foreclose that dumping has become an epidemic.
If you are the owner of a foreclosed property that has not been sold, you may want to check on the status of the home and meet with an attorney before you get a letter from the city.
Then, you might want to write a letter to your representatives.
All of them.
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Comments
Hi Gypsy--yes, it's worst in rust belt cities like Cincinnati, Detroit, South Bend, etc. I have more on it, I didn't want to make this overly long, So I'll be doing some more hubs about it.
Thanks. You've given me some ideas.
Cool! I hope you write about them. :)
So the bank or the sheriff cannot sell them for a minimal amount just to get someone into a house who needs a home and will maintain the property? Maybe I just don't understand this.
Hi Rochelle--No, you understand it. The homes go to sheriff's sale and no one bids. Or, they never go to sheriff's sale because after initiating foreclosure and evicting the inhabitants (thus insuring the home will be vandalized and ruined) the bank never schedules the home for sheriff's sale and just removes it's name from the mortgage.
The reason this is happening is that, at the low end, in some industrial cities, many properties are can't even be rented. In order to buy a such a home to live in it yourself, you must pay cash (no mortgages at sheriff's sale), and people who need somewhere to live don't have the cash (or the understanding of how to bid), and investors know the cost of carrying the house until it can be resold makes it not a good buy. So no one bids.
Some parts of the industrial midwest may NEVER come back. We just don't know. But we know for sure that any investor buying such a property will have lots of expense rehabbing it and carrying it indefinitely.
So it's like a game of 'hot potato.'
That is creepy and it's one of the most ironic things around... if the bank didn't bother to foreclose, the homeowner might recover and catch up. You'd think they'd be just offering easier terms in those circumstances in order to get something out of it.
Hi Robert--I guess that would make too much sense. Some news reports claim they are starting to be more willing to negotiate, but tlaking to individual people I'd say, no. By all accounts foreclosures are increasing in spite of the minimal efforts by various agencies to head them off or do loan mods. It makes me pretty angry. I mean, cities are being destroyed this way, and fast too.
Pam, not only is this a terrible injustice to the poor people who were thrown out of their homes but creating a blighted neighborhood is just plain stupid. It seems like this weird practice can only push us further down the hole. What a mess.
Hi Dolores--The banks are still getting away with murder. Foreclosure is a much more serious issue than most people realize. I'm planning to do a series of hubs on some of the issues. I think there are lots of things people don't know about that need to be addressed in an aggressive manner but are just being ignored right now. This is one of them. Thanks for your comment.
Well, I think if your home city really wanted those houses to be sold, it would abandon property taxes or dramatically cut them. This would really help the total cost of ownership and attract investors. :)
Misha, I agree totally. Many of these rust belt cities have horribly corrupt local governments. They gouge slum property owners and lighten up on businesses and people who live in good neighborhoods. This is a very entrenched system and currently some of them are literally eating themselves alive.
It doesn't excuse the behavior of the banks though. Two wrongs don't make a right.
I don't understand. If this is the bank's known behaviour nowadays, why don't owners just stay in their homes?
OK-- " I understand"-- though I have always wondered why people who lose the house-- couldn't just hang on , or purchase it for a minimum amount, if only by marginal payments to maintain the minimum value.. ok , I'm sorry. You are wrong. I don't understand.
In cases like this I always think of the final scenes of "I, Claudius" where he finally gave up the fight against all corruption and said something like. "let all of the poisons leach out"...
Maybe it will have to run its course, before there is more stability.
"Common Sense" and "Financial Institution Policy" are two terms that are mutually exclusive - i.e. it is impossible for them to exist together.
Property taxes are one of the major income sources for governments. In the current financial situation, I can't see them letting go of that revenue.
They lose it anyway in such cases. Likely forever.
@Misha. Yes, of course they lose it. And it would be common sense to reduce it.
But they wont - read the top bit of my previous post. It applies to governments as much as it does to financial institutions. :)
Quelle mess. For all those free market capitalists who want to keep government out of their business -- way to dump their business on the local governments. Nice. This trend is well named. DUMPING indeed.
The biggest shame is that the houses just sit there with no one living there. Why COULDN"T the foreclosed-on owners take reposession? Who could it possibly hurt?
Who needs terrorists when we're destroying our own cities this way. Shameful.
This is outrageous behavior by the banks, although not surprising. After all, we the taxpayers bailed them out so they lost nothing in $$$$$. How’s that for a kick in the butt…The worst thing that ever happened to this country was DEREGULATION!
This is shocking. I have never heard of such things happening. Its sad to see this. No wonder America is in such a mess. Hopefully banks will realize their mistake and rectify it. Thanks for sharing this info pgrundy.
Hi everyone,
Wow, the hub score on this puppy is 38! I don't think I've ever had a hub score that crummy. Maybe I better write some happy stuff. :)
I think what's shocking is how much the banks have not changed, at all. I was reading about this practice that's been going on since the subprime crash that is causing a new wave of regional and smaller bank failiures. It's called 'hot money'. Larger banks or investment banks make huge 'hot' deposits in smaller ones so the smaller ones can make high interest loans on risky terms and share out the profits. Now a lot of those smaller banks are going bust. They're still gaming the system. And this is after all the first subprime mess.
Eric is right, city government is not going to change. It's the province of thugs and hacks and has been for as long as I can recall. They don't have the intelligence or the values to change, they're very corrupt, and local people ignore them in most cases and argue about the President when right in front of their noses some thugs are ruining their town. Happens all over.
The information you give in this Hub is shocking. In North Carolina, real estate has always been valued, unless it's a swamp or lot without road access. After considering the situation you've presented, it seems that a stiff civil penalty should be imposed by the county upon the mortgage holder if they evict a homeowner and then abandon the foreclosure process, thereby uprooting homeowners while giving vandals free reign to cause damage that blights a community. An ordinance providing for a $5,000 fine every month the mortgage holder abandons the foreclosure process AFTER evicting the tenants would be punitive enough. I think the fine would be held constitutional, as the county has a very real interest in making certain that its landscape does not become a vandalised ghetto or ghost town.
Just another American institution abdicating responsibility. Perhaps the corporation will prove itself to be such a bad thing it will be made illegal someday. Maybe someday all companies will be privately held and the owners held legally and personally responsible for what the company does. It could happen. Yeah.
Staci-Barbo--Thanks for your thoughts on this. Those are great ideas. The problem though is that the banks doing this are practically immune to threat, legal or otherwise. You can fine a goliath bank, but you can't MAKE them do much of anything. The legal resources of any given midwestern county are like a single gnat to the legal department of any mega bank. One thing that is happening now though is local residents are banding together to buy up distressed properties and develop them BEFORE this happens, but that takes skill, organization, and deep pockets.
Tom--Hi, thanks for coming by. I don't see how this changes unless banks are regulated again and the giant ones broken down to a size that is 'small enough to fail'. What we have now is just more corporate looting. I'm so sick of it. I see no serious attempt to stop it either.
What happens if the evicted owners simply move back in and squat? Do the banks take them to court to evict them a second time?
Or could the banks simply set up some sort of charitable trust and "dump" the property in to that and off-set any loses incurred in running the charity against their taxes. All while allowing the previous owners to remain in the property for some nominal payment. The banks get to keep the property; Someone gets to keep a roof over their head; The government gets to fund it throught the reduction in taxes it gets from that bank.
Hi Mike--Squatting has become quite the thing in some urban areas, but that comes with it's own issues. Often squatters are not exactly good neighbors. I mean, they can be, but they can also be setting up crack labs.
Your suggestion about the charitable trust is a good one. The problem is (and I hate to be brutually blunt but I don't know how else to say it)--no one cares. What I mean is, we have this 'slippery slope' philosophy that we feel we must apply to poor people and working people, but we have a separate standard for huge corporations, banks, and the uber-rich. If you float suggestions like yours, a hundred people come out of the woodwork to say you are Stalin's little brother and it's time for you to be deported you big socialist pinko weirdo. The support isn't there, but it should be.
Some local groups have gotten a foothold in developing abandoned property but they face an uphill struggle. Cities are just starting to see that something has to be done, but now they are beyond flat broke and too often what they do is just raze the structures.
I have to shut up now or I'll write another hub in comments. Thank you for your on target, insightful thoughts. :)
James Watkins, who as you know writes well but on the other side of the political spectrum, got assigned a 38 on his last hub, too.
I've heard of dumping but no more than a vague discription (one I sort of had to figure out myself, using "helper words" lol). Great topic.
Hi Steve---Interesting. I never really did understand these numbers. I see I've zoomed to 48 now on this one. I guess they mean something to someone but they don't seem to follow any pattern to me.
Frieda--Hi! I appreciate you coming by and reading this. So much weird stuff is happening right now it's hard to keep track of it all, really. :)
How completely rotten the legal system is. The owner gets kicked to the street with his family, and then the bank walks away. Naturally, many of these home owners put themselves into their situation, but it seems almost spiteful the way the banks have decided to handle the issue. Since the bank benefits even less by allowing the home to foreclose, couldn't a deal be worked out with the current homeowners or new homeowners? This is stupid. Great hub again Pgrundy, you exposed something many of us probably never heard of. I hadn't anyway!
Thanks Alexander--I do think by the time people realize the banks are rotten and stop fighting with and blaming each other, it will be way too late, but I hope I'm wrong. They're totally out of control and no one is stopping them.
Pam, this is why I have been advocating just walking away from all loans that are usurious and hurtful to the consumer. Believe me, the consumer cannot spend if they just pay down debt to loan sharks. We didn't get a second stimulus because we stupid Americans saved and paid down our debt. Save, and hide the money and don't pay these banks a dime. Gain our sovereignty back from these European and mafia family (Rothchild and Rockefeller) banks, the Federal Reserve, Citibank, JP Morgan, and Goldman Sachs: http://hubpages.com/hub/It-Is-More-Important-to-Sh
bgamall--I think it's a good strategy. Imagine what would happen if everyone did that at the same time. We could bring the whole system down.
Right now though, people are too busy tearing at each other, labeling anyone who gets into debt trouble as irresponsible and stupid. We frame it as a moral issue but we blame the wrong side, IMO. Abraham Lincoln had to file bankruptcy at one point in his life. He made a pretty good President anyway and few today hold him up as an example of irresponsible behavior or poor character.
Gypsy Willow says:
5 months ago
What a sorry situation!