In the through the looking glass world of reality according to banks, tearing down foreclosed houses is a good thing. Really.
The spin that Bank of America is using to justify the notion of bulldozing buildings is that the houses in question are worth bupkis, say $10,000 or less. There’s a wee omission in their discussion. Many if not most of the houses in question have fallen in value because the bank failed to maintain them on behalf of investors. They were stripped for copper and appliances, or got moldy, or had squatters move in and make a mess of the place. I’ve heard numerous stories from not only foreclosure attorneys, but also from readers bidding on properties out of foreclosure. For instance, one attorney told me of a house with a $1.3 million mortgage where the owner had arranged a short sale at $1.1. million. The bank refused to take the offer, foreclosed on the house, sat on it, and eventually sold it for, if I recall correctly, $200,000, which I’d bet was the value of the land. The bank made marginally more in fees via this route and delivered a much bigger loss to investors. I’ve heard similar tales from readers greatly lowering their bids on bank owned properties because they deteriorated so much as the process dragged on.
But here is the scam, um, program, via Bloomberg:
Bank of America Corp. (BAC), faced with a glut of foreclosed and abandoned houses it can’t sell, has a new tool to get rid of the most decrepit ones: a bulldozer.
The biggest U.S. mortgage servicer will donate 100 foreclosed houses in the Cleveland area and in some cases contribute to their demolition in partnership with a local agency that manages blighted property. The bank has similar plans in Detroit and Chicago, with more cities to come, and Wells Fargo & Co. (WFC), Citigroup Inc. (C), JPMorgan Chase & Co. (JPM) and Fannie Mae are conducting or considering their own programs…
The lender will pay as much as $7,500 for demolition or $3,500 in areas eligible to receive funds through the federal Neighborhood Stabilization Program. Uses for the land include development, open space and urban farming, according to the statement. Simon declined to say how many foreclosed properties Bank of America holds.
Donating a house may create an income-tax deduction, said Robert Willens, an independent accounting analyst based in New York. A bank might deduct as much as the fair market value if a home wasn’t acquired with the explicit intent of knocking it down, he said…
It’s an economically justifiable transaction,” {P.J.] McCarthy [of Fannie Mae] said. “Holding on to a property that might sell for $1,000 or $2,000 or $5,000 for several hundred days is not in anybody’s best interest.”
The argument made in the article is “No one needs these homes, no one is going to buy them.” But that’s bogus. As reader Justica pointed out,
Last I checked, we still have a large population of homeless people in Chicago, Cleveland and Detroit where they plan to demolish houses. Remember this next time you hear someone talk about how “efficiently” the market allocates resources. This is waste on a monumental scale.
The benchmark should not be the low purchase price, it should be whether the building is a health hazard or in such serious violation of local building standards as to be irredeemable ex very significant investment.
In the days when Harlem was full of abandoned buildings, there were many homesteading programs, some not exactly legal, others whereby people who presented a plan and could prove they had sufficient resources to execute on it could take over an abandoned building (this was for personal use rather than to flip them). These were considered to be positive measures, since they brought in new residents into the neighborhood and improved the properties.
The only good news is that this program is expected to remain small scale. But with 10.8 million homes at risk of default in the next six years, and banks overwhelmed by the volume of delinquencies now, I wouldn’t bet against short sighted bank-favoring expediencies like this becoming widespread.
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Maam;
Unintended irony abounds. This scheme perfectly mirrors that great first scene in the movie version of “Grapes of Wrath.”
Indeed.
At the risk of sounding Marxist—oh, what the hell, I completely INTENDED to sound Marxist—this is a perfect example of the effect of excess capital at work. In fact, the entire economy is: the few at the top, torpid with capital they can’t convert fast enough, furiously clinging to it as it degrades in value, while the rest of us wait under the table for a few of the spoiled crumbs. Wasteful, pointless, and utterly predictable.
Bulldozing homes that could be used, but not sold profitably, is merely the invisible hand reducing supply to bolster demand. Creative destruction?
In time there will be a shortage of housing driving up the price of those that remain [appreciation] or maybe even new homes will have to be built, facilitating the recovery of the residential construction industry. And as we all know, recovery of the housing market is key to the larger econommic recovery… Irrational exuberance?
Plow the crops under, pour the milk down the drain, let the grain rot in mountainous piles, let people starve. Demolish houses to solve the homeless problem! But never sell at a loss to clear the overproduction that can never occur in the first place… efficient market hypothesis at work? Or is it irrational exuberance? Or creative destruction? Please choose one or more. After all, you are free to choose!
Hungry, jobless, homeless persons with signs begging for your help on main thoroughfares outside opulent gated communities [castles without the moats?]. So many roads to serfdom … Pick one!
And BoA is small potatoes compared to Fannie. We’ve been looking for an ultra cheap house to rehab for a year. Sheriff’s sales are completely dominated by Fannie. Fannie bids the amount of the debt, thus closing out other buyers. Then they turn the houses at the low end over to a local authority to demolish.
This is clearly an effort to prevent people from doing what we’re trying to do: buy a house for cash, rehab it out of cash flow and end up debt free. And there’s the hope of cutting supply and propping up housing prices as well.
We did manage to buy a place (actually, two houses on one lot) a month ago from a flipper who purchased them at a tax foreclosure sale in bulk, so we’re busy rehabbing.
But if we’d waited to find one through the bank foreclosure process, I doubt if we would ever had succeeded.
So what does Fannie do with them? Fix ’em up & sell ’em? If so, good.
But if they’re abandoning them, then we need people power to seize and live in them, to prevent their falling apart from neglect. The dispossessed homeowner is candidate no. 1.
Fannie doesn’t fix shit. Fannie evicts the homeowner. The home is frequently sold for a fraction the borrower allegedly owes. Fannie was the conduit for epic fraud, a name proudly associated with this facist dying republic.
Fannie Mae is/was a criminal organization used to steal wealth. Former criminals at Fannie Mae are in cushy Government jobs, back with their friends on Wall Street, or relaxing in prominent lawfirms. Unscathed, untouched, facist felons.
Fannie is fixing them up. They are understaffed, and our margins are thin, but we’re doing what we can. (I work for a vendor that gets midlevel homes back up to market condition). There are three tiers of homes 1: High end properties over the Conforming limit. These go to cash buyers out for a deal. These properties go pretty fast. Usually to occupants, but these are a lot of cash investors, too.
The next level, the conforming home, is one that we can get to market value in neighborhoods where property values are at least $75/ft^sq, We get them a stage where they will qualify for a conforming loan and sell fast at 80-90% of retail. This is the majority of homes in our area. The last are these tear downs (actually going to cash auction in our area- there is enough demand for rentals) THis is probably less than 20% of the properties that we see. They are condemned, and the only viable sale is a cash sale, with city or county approval. They, of course, are understaffed.
We’re going as fast as we can but Fannie is backlogged, and they can’t hire more people to fix houses without opening it up to more bad actors. a quarter of our work is fixing things that were already repaired by a company that was just painting over everything, sendin in pictures that hide the problems, collecting their checks and running. There’s a lot of bad actors trying to get in on the action, and it’s hard to supervise.
Just one question I have for you…..how do you plan on transferring title? Plan on signing a Warranty Deed????
If so, good luck, Bub. And just hope some legal savvy person does not buy from you and sue the living daylights out of you for “guaranteeing a worthless title.”
The problem is the government, or something like that I hear from Tea Party. If you don’t rise the debt ceiling it all ill be fixed!!!
Actually, I think you might have meant to say, “…is merely the middle finger of the invisible hand reducing supply to bolster demand. Creative destruction?…”
But I could very well be mistaken about that.
This is NOT capitalism at work. The bank’s losses are being subsidized by gov. Capitalism cannot exist where gov exists. One must go. Capitalists will be put out of business by businessmen who use gov, i.e., fascists. What most people call capitalist businessmen are actually fascist businessmen. Capitalism requires a complete separation of business and gov.
Is there anybody the banks don’t screw including ultimately themselves?
We need a reset and fundamental reform. It MIGHT not be too late.
best way to rob a bank to manage one
You are very correct with this statement. I learned banking in the 70ies and it was a rather boring business, so I left and started working in the industry. Never ever did I expect what exciting sector I left. Today it is gambling with the tax payer taking the toll when miscalculations are made (latest episode is the saving of Greece, what a joke, it obviously was the banks that were saved). It will take a revolt at the ballot box to change things and I am sure it will happen. It just takes that darn much time.
The root cause of all these bubbles should never be ignored. The FED’s manipulaton of interest rates over so many years enabled this extreme build ups in debt in every sector of the economy. We really need to reboot and as longer we wait as more we lose, similar to when your computer (economy) slows down more and more until you finally decide that you have no choice to reboot, no matter what infos (wealth) you might lose in the process.
the financial “miscalculation” you mention is a euphemism for fraud
Yes, bank executives. They’ll drive the banks over a cliff so long as they can preserve their own bonuses. When an organization behaves in a way that is not in its best interest, you will often find that it is in the best interest of the people running that organization.
Another reason to argue against the efficiencies of Capitalism and for the mis-allocation of resources that Capitalism produces.
The only silver lining I see here is moving the suburbs to the city (density-wise: single family to multi-tenant units).
IMHO, it’s a good thing – reduced maintenance costs and a still decent quality of life.
Now as to why the banks are doing it, well…
As noted the houses in question have been stripped of plumbing and electrical. Likely to get them to a state to get a certificate of occupancy you would have to gut to the studs and do over. Thats a significant part of the cost of the house. Many that I have seen in pictures from Detroit have also burned. The cities want this to happen so that they can abandon services to neighborhoods that are now vacant lots. Flint MI for example is doing this, and Detroit wants to.
There have been posts elsewhere on houses going for 1k to 10k in Detroit, which sound like candidates for the bulldozer.
Lyle,
URBAN TRIAGE…
Maintaining water, electric, gas, fire, police services, and public transporation routes for one occupied house on a lonely street in a delapidated neighborhood like you’re describing is prohibitively expensive – at least from the standpoint of public officals confronted with declining revenues and impending budget cuts. Hence, the efforts in some cities to encourage “relocation” to what are deemed more viable neighborhoods. Consolidation is more like it.
It reminds me of historical accounts of how life on the periphery of the Roman Empire changed/deteriorated once the manifestations of imperial authority were withdrawn. Commerce declined in these “outposts of civilization” as there was no longer sufficient demand for goods and services once generated by the legionnaires garrisoned in them. The standard of living and overall quality of life slowly declined for those who remained behind even though some of the locals were undoubtedly glad to see the “Romans” leave.
The modern variant occurs when local shops and grocery stores close along with the eventual closure of the post office, police precinct, fire station, library, and neighborhood public school. All symbols of once thriving communities now gone. What comes in their wake this time around may give “Imported from Detroit” a totally new meaning… the Internet and wireless notwithstanding.
Funny, in my ‘hood where houses are dilapidated, the survivors scurrying around saving shekel from their 9 to 5 treadmills are surrounded by the gleaming towers of Defense Contractors, they suck water, power and other precious resources. Their Capitalist role is too ignore wastelands outside of profit. I suspect it is like this in other areas, little fortified corporate castles where the beautiful people work.
Give the folks in Cleveland a little more credit, please. They have been pressuring banks–esp. the banks like B of A that have played a large role in creating the foreclosure crisis–to fund demo of foreclosed houses for years.
This is an agreement worked out between B of A and the County Land Bank (modeled after the one in Flint, MI). The folks running the Land Bank are sharp, honest, and dogged, and are working to develop a mechanism to return foreclosed homes to market and demo those that are unlivable.
That B of A gets to take a tax credit for taking a hand in solving a problem they created isn’t Cleveland’s fault.
The problem remains that the disenfranchised don’t have a voice. It’s always questionable when a business a$$hole says this is “what should be done”. They pulled this sh$t in Detroit.
Unable to sell at a profitable price and unable to halt production, many dairy farms simply poured milk on to the ground or into streams during part of the Great Depression.
Not exactly what Riggsveda intended to bring out – a crisis of overproduction [which at base is the overproduction of means of production relative to the surplus labor value being created]. Patrick Bond does a wonderful job of bringing the finanancial into this in his very short paper ‘What is a Crisis of Overproduction’ at http://www.marxmail.org/faq/overproduction.htm
I want to reiterate, these crises are not simply relative shortage of monetarily effective demand but also shortage of labor produced surplus value relative to total capital to be valorized — these crises take place on both production and consumption ‘sides’, and then spill over into the financial. Note as well that these develop in a transcyclic fashion, i.e. over multiple business cycles, so facilitates heterogeneity of production capital along with sectoral disproportionalities.
Capitalism cannot function otherwise…
They were saying the same thing about Capitalism via Gramm-Leach-Bliley Act of 1999.
Note that the same thing happened to oil in the East Texas Field during that time (1930) oil had fallenen to 20 to 30 cents a barrel and a lot got left on the ground. The governor of Texas sent in the militia and shut down production until the Railroad commissions pro-ration took effect.
Note the same in Afghanistan, our most brilliant Bankster financed military minds decide that destroying villages and all the civilians in them is “how ya save it”. Bulldozers or cordite, Americans are simply the worlds leading, stupid, vicious assholes, but not for long.
Oops, I think this sentence was abbreviated in the article…let me finish it for them: “Uses for the land include development, open space and urban farming,” weeding jobs for kids whose parents are mad at them, excellent breeding grounds for rodents, good places to drink 40 ozs on Saturday night then smash the bottles into the ground, good hiding places for needle use, and free trash dumping.
It probably takes at least $1,000 to maintain a even an empty lot each year, so BofA made a wise financial decision to get rid of these places and let someone else (the city) deal with the liability and the upkeep. Hey, a jobs program! Upkeep of empty lots! Wait, sorry, austerity–no money for that.
oh yeah, add in the lawyers who come after the “unviable” to collect everything from water bills to back taxes. The press keeps quiet about the fate of the old, disabled, the unemployed, the poor in general. It’s like garbage collection for profit.
there will be plenty of workers to clean up you know fema camp slave laborers.
Yves, have you ever watched the first Robocop movie? It may be not your cup of tea type of movie but check it out for all the corporate/fascist undertones. Yes it’s a movie about a guy who becomes a robot cop. But the reason such a project is undertaken by private industry (creating privatized robot police) is because the local police have been so decimated by lack of gov’t support, lower pay, and stronger criminals (who are financed by the corporations). So a megaconglomerate corporation comes into town and says “look at how corrupt police and the govt is, we promise to rebuild detroit in our image”. So they design a new detroit city they will build on top of the old city after all the crime is cleaned up. I will stop there.
Check out robocop 2 as well. Yes they are bloody. But it provides more story around how the local gov’t is broke and is willing to be bailed out by a corporation while at the same time the corporation promises a better life for detroit citizens.
Yes. You could think of robocop as a very, very fancy parking meter.
Omni Consumer Products-tell em Dick Jones sent me!
What is the value of the properties on banks books?
Now you can understand why this is going to be small scale…
that’s great… make America one massive Detroit…
that’s the way to make america great… they really do their name proud (not)…
Economic efficiency be damned. This just makes me want to cry. When Yves speaks of the “investors” taking the losses, while the servicing banks collect fees and tax credits, she isn’t just talking about hedge-fund sharpies who ended up on the wrong side of MBS deals, investors include the likes of pension funds, and with the huge investment made by the U.S. Federal Reserve Bank in MBS to keep the system afloat, that investor is you and me brother.
Question:
Why aren’t homeless folks throwing bricks through the
windows of BofA offices?
CORPORATE HEADQUARTERS
Bank of America Corporate Center
Charlotte, North Carolina 28255
United States
Phone: 704-386-5681
Fax: 704-386-6699
The local gov’t play s big role in creating the inefficiencies in this market. If you are a rehab and rent landlord in Cleveland/cuyahoga county you have to post a huge escrow with the municapality that equals the after repair value of the property. The local gov’t will not release that amount for 6 months or so (they like the free loan). So if you buy a house for $10K that needs $20K in rehab, you have to tie up $60k in capital. Then their property tax rates are double what they are in a market like Charlotte or Atlanta. That’s a big reason this low-end inventory is not moving. The cluster at the banks, the cluster in the gov’t – as an investor – why would somoeone bother?
Municipality? You mean the people in the Banks other back pockets?
(Landlords are frequently scum who never give a sh%t, the most successful usually never complain about their municipalities, since they own them too)
I’m a landlord and I care about my properties. I keep them clean, quiet(no parties or motorcycles) and neat(no clutter). You are generalizing. You must be more specific about whom you are talking about.
you know about the ol cia white star program from nam too? those were good times, we were jolly green giants with guns.
Didn’t they used to call the consolidated housing zones “strategic hamlets”?
The proximate problem with housing in Detroit, Cleveland, and the rest of the mid-west rust belt cities is massive depopulation caused by destruction of manufacturing jobs. The root causes of this have been debated at length in this blog.
There is no one to buy these houses. Banks have figured out that dumping properties on the market at fire sale prices just pushes more people underwater and increases the supply even more. Don’t expect them to start flooding back even if robosigngate ever gets resolved. Destruction of excess inventory in some of those cities is unfortunately the right thing to do. Pity the perps are profiting from it. And I suspect that these lots are indeed going to have more needles than urban farms. The people of these cities deserve better than disaster capitalism.
Some cities made it through – Pittsburg, for example. Hoping for something similar for the rest. Perhaps when we get serious about a sustainable future – energy, tranportation, food, jobs – these cities will have a role to play in the rebuilding of the country.
As pitiful as all this is, Yves touches on the other side, which is (in most cases) investors who get absolutely slobber-knockered with losses (state pension funds, other funds, private, name any). The fact is if BAC or any of these finks did a deal with the homeowner in good faith (principal reduction, REAL mod, short sale), in a lot of cases, the investors would not lose nearly as much and many homeowners would have hope and even the ability to keep their homes.
But nooooo…BAC doesn’t make money that way. They make it with mutual assured destruction on both sides…walk away with fat fees and tax breaks, TARP, QE1 thru…?
It gets better: They have perverted the legal system and local governments recording and bookeeping integrity. The TBTF’s have become a pernicious, destructive and thoroughly divinding force in our society and need to be radically restructured. Listen to anyone who is really smart (not me..for sure), like Chris Whalen, Barry Ritholtz, Mr. Johnson (13 Bankers), etc…they all say the same and more telling…there is no cogent rationale at ALL coming from the TBTF’s.
What a travesty.
Most cases exemplify the continuing harms caused by the securitization of mortgage loans and a secondary mortgage market that ignored state law in an effort to sell and resell mortgages and securities backed by mortgages.
It would, on some level, be lovely to watch these motherf@#$ers burn for what they’ve done. Listen as they squeal:
July 28 (Bloomberg) — Bankers including Goldman Sachs Group Inc. Chairman and Chief Executive Officer Lloyd Blankfein and JPMorgan Chase & Co. chief Jamie Dimon called on President Barack Obama and Congress to raise the federal debt limit to steer the U.S. government away from the threat of default.
The process is called “taking them down with you”.
In my neighboring blighted town, the typical course of action for a run down home is for city council to go after the homeowner to bring the home up to code. (these are not bank-owned). If the homeowner fails to bring the home up to code, the city can take the property away from the owner and bulldoze it.
So, the benchmark issue should be whether local governments want to or have the political will to enforce their bldg codes on the Big-Bank REOs.
If these local govs lack the political will, the homes will be torn down. It is an easy decision, in fact. Bank lobbyists will be at city council meetings telling City Councils how impossible it is to bring the home up to code and that it is just better to tear it down.
The only thing the city loses is the tax base, but the blight is slightly lessened with an empty lot or empty city blocks
I see mention of “The Invisible Hand”. This idea always make me think Capitalism is a religion.
Funny thing about that invisible hand, have you noticed it’s always attached to Uncle Sam’s wrist?
Property taxes are rent therefore one does not actually own their home. Property taxes at least for the primary home must be eliminated. Other taxes such as local sales, local income or just a one time sales tax on the sale of the home is ok.
This hurts local government, there will be less tax revenue to pay for the infrastructure set up when there were homeowners paying the bill.
This is going to lead to layoffs for teachers, cops & firemen for smaller towns which will then lead to more people missing mortgage payments
This is great, the whole money play is all falling apart finally
Property taxes at least for the primary home must be eliminated. Property taxes are rent therefore one does not actually own their home.Other taxes such as local sales, local income or just a one time sales tax on the sale of the home is ok.
When we say that our government “saved the banks” what are we really saying?
Do the banks hold their own money or ours?
Isn’t it simply that the QE’s were FICA on a larger scale?
Serious question, because I am confused.
That deserves a serious answer. I you can find entries in your bank or broker statement, it’s yours. Don’t be mislead by some commenters this site.
If the MMTers say you have more than that, don’t believe them either!
Reset, reform. Ron Paul.
Just remember it was capitalists who funded communism under Stalin. Check it out!!!
You can’t blame capitalism this time. It’s the bank bailouts that already paid for this nonsense. It’s the government’s fault. If they didn’t bailout the banks, they would have failed and all the assets picked up and liquidated by someone else. These houses would have been sold for whatever the price to investors who would improve them and rent them if possible. In any case, it’s not capitalism’s fault, it’s clearly a misguided government action in addition to a failed government sponsored housing subsidy in the form of Fannie and Freddie.
Be clear and assign accountability to the right party. The Washington do gooders are to blame!
You are perhaps unfamiliar with the name Angelo Mozilo of Countrywide and his new facility for managing subprime mortgage loans in 1996… Note the creators of MERS were actually former executives of Fannie Mae and Freddie Mac, etc., and conspired with the banking industry to defraud any an all of We the People.
http://stopforeclosurefraud.com/mers-101/
Given the condition of some of these houses that were foreclosed, it’s a welcome step. Ever look into a house valued at $10,000? or even $5000? I declined to buy a few of them. Either not worth fixing due to severe structural problems, or damage due to things like termite damage. And the houses weren’t worth buying to tear down, as the demolition costs exceeded the value of the lot. If the cities receive them from the banks, then the cities can convert a few of them to parks, or community gardens, or other public use. They are more valuable as empty lots, than a potential hazard or worse yet, a crack house.
This is a result of bail out money….The banks are in cahoots with the radical liberal left, the billionaires who own the banks, the media, etc. Say, “NO” to foolish bail out money going to banks who should go under like any other corporation due to bad management. Does the little guy in small business get a bail out? No, he is not a member of the Bilderberg club. It is the progressives (former President Bush) who insisted that the banks give loans to those who were marginally qualified……Bush needs to be prosecuted for all of the foreclosures, for the pain and suffering inflicted upon people losing their jobs and homes. Shame on Bush and shame on this administration for doing more of the same and not stopping this madness. Prosecute all white collar crime in all three branches of government….they are not above the law….period!
Did you actually just call George Bush a “progressive”?
hi!!!