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Thread: Banks starting to demolish worthless foreclosures

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    Cyburbian mgk920's avatar
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    Banks starting to demolish worthless foreclosures

    In a trend that does not surprise me at all, many banks are opting to no longer hold on to many essentially worthless foreclosed properties and instead are starting to demolish the structures and then give away the land for free.

    http://www.washingtonpost.com/busine...IgL_story.html

    Any thoughts?

    Mike

  2. #2
    Cyburbian wahday's avatar
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    I saw this story yesterday. I am not surprised either. And though I realize it is more complicated than this, it really seems a shame that banks are demolishing homes (at no small cost I am sure) at the same time that others are losing their homes or, because of employment status, stagnating wages, whatever, cannot afford to buy. That's a lot of effort that still leaves many wanting.

    I don't have a proposal for how to handle it better, but the thought that you might be hungry, and I have food, but because you have no money to buy it, I would rather just destroy it than let you have some seems like a sad and wasteful outcome for everyone. These are crazy times.
    The purpose of life is a life of purpose

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    Cyburbian ColoGI's avatar
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    Quote Originally posted by wahday View post

    ...the thought that you might be hungry, and I have food, but because you have no money to buy it, I would rather just destroy it than let you have some seems like a sad and wasteful outcome for everyone. These are crazy times.
    Get used to it. That's what happens in resource scarcity (purposeful scarcity or achieved via natural limits, either way).

    But I agree some sanity is in order. How do we get some?

  4. #4
    Cyburbian btrage's avatar
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    Quote Originally posted by ColoGI View post
    Get used to it. That's what happens in resource scarcity (purposeful scarcity or achieved via natural limits, either way).

    But I agree some sanity is in order. How do we get some?
    I wouldn't say we are resource scare. Rather, our financial/tax system has created this sphagetti bowl of craziness.
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  5. #5
    Unfrozen Caveman Planner mendelman's avatar
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    Well, through enforcement of nuisance codes, we, the city, are going to start initiating some demos on the really bad foreclosures, but most times these are properties a slumlord would likely buy, fixup to a minimum, then be absentee. Like I said, we are targeting the worst units and we have only targeted about 6 out of ~14,000 dwelling units in the City.

    Plus, there really is a surplus of units in our city and some thinning of the herd would be good for the general market. Anyone looking for housing is not lost here, there is ample rental supply.

    But our efforts at nusiance abatement will hopefully force some of these banks to do something.
    I'm sorry. Is my bias showing?

    Let's not be didactic in this profession, because that is a path to disillusion and irrelevancy.

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  6. #6
    A lot of historic resources bound for the landfill, I'm afraid. Replaced by vacant lots, gaps in the street wall. "Hopes" that redevelopment will happen. Urban renewal via the private sector. Good luck with that.
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    Cyburbian Tarf's avatar
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    Quote Originally posted by mgk920 View post
    starting to demolish the structures and then give away the land for free.

    My first question is... huh? I mean, why are banks spending money to demolish the structures and THEN give away the land for free? Wouldn't it just be easier for them to give away the land WITH the structure, thereby saving the demo and construction waste fees?
    In the beginning the Universe was created. This has made a lot of people very angry and been widely regarded as a bad move. (Douglas Adams)

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    Cyburbian mgk920's avatar
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    Quote Originally posted by Tarf View post
    My first question is... huh? I mean, why are banks spending money to demolish the structures and THEN give away the land for free? Wouldn't it just be easier for them to give away the land WITH the structure, thereby saving the demo and construction waste fees?
    As has been discussed upthread, most of the structures that are being demoed are well beyond economic repair and would be a major cost to whoever would be willing to accept the properties for 'free' - it wouldn't be worth it. Even with no direct economic return for the banks, they're more than happy to be rid of these properties because each one is a major cost to them, with the real potentials of even deeper costs due to property maintenance, code issues, nuisance issues, etc. And in many cases, the neighbors are thrilled to be rid of those structures for their blighting influences on the rest of their neighborhoods.

    Mike

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    Cyburbian dw914er's avatar
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    Quote Originally posted by mgk920 View post
    As has been discussed upthread, most of the structures that are being demoed are well beyond economic repair and would be a major cost to whoever would be willing to accept the properties for 'free' - it wouldn't be worth it. Even with no direct economic return for the banks, they're more than happy to be rid of these properties because each one is a major cost to them, with the real potentials of even deeper costs due to property maintenance, code issues, nuisance issues, etc. And in many cases, the neighbors are thrilled to be rid of those structures for their blighting influences on the rest of their neighborhoods.

    Mike
    I can see merit to this side of the issue, and if the conditions were right, some houses would be better off financially if they were rebuilt instead of repaired. On the small scale, this would actually be good. If this becomes a common practice though, some neighborhoods would end up with massive patches of empty, vacant lots. Large gaps in the street wall could become another problem placed upon a devalued area.

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    Let's consider a few more reasons to not just give away the buildings. Though it would be great in a perfect world.

    Here are two issues I see.

    1) People getting angry that their investment (their home) decreases in value because local buildings/homes are being given away. If it were to to become a nationwide free home giveaway then this problem would affect homes in most/every district.

    2) Lower homes values means more people upside down on their mortgages. Which means more mortgage defaults which means the banks lose money and are stuck with more worthless properties.

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    Cyburbian Plus
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    Quote Originally posted by dw914er View post
    I can see merit to this side of the issue, and if the conditions were right, some houses would be better off financially if they were rebuilt instead of repaired. On the small scale, this would actually be good. If this becomes a common practice though, some neighborhoods would end up with massive patches of empty, vacant lots. Large gaps in the street wall could become another problem placed upon a devalued area.
    These could be addressed through neighborhood green spaces if enough time is given to see if anyone is interested in redevelopment.

  12. #12
    Unfrozen Caveman Planner mendelman's avatar
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    Quote Originally posted by dw914er View post
    ...some neighborhoods would end up with massive patches of empty, vacant lots. Large gaps in the street wall could become another problem placed upon a devalued area.
    In such a situation, the neighborhood is better off with vacant lots than vacant and abandoned buildings
    I'm sorry. Is my bias showing?

    Let's not be didactic in this profession, because that is a path to disillusion and irrelevancy.

    Six seasons and a movie!

  13. #13
    Cyburbian wahday's avatar
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    Quote Originally posted by Tarf View post
    My first question is... huh? I mean, why are banks spending money to demolish the structures and THEN give away the land for free? Wouldn't it just be easier for them to give away the land WITH the structure, thereby saving the demo and construction waste fees?
    I think there are a couple of reasons for this. Firstly, the article says they are donating 100 properties a year in the Cleveland area to the Cuyahoga land bank. At $7500 a pop to raze the structures, that's an additional $750,000 the land bank would have to come up with and they may not be able to handle that kind of volume (leaving the banks still holding the properties).

    Secondly, it sounds like these are mainly homes in disrepair requiring investment for code violations just to keep them standing (lest the city condemn them) plus additional money to make them ready for sale let alone marketing them, paying taxes, mowing the lawn, etc. This is money the land bank also probably doesn't have. If they are not going to be able to raze all the structures they receive, they need to be brought up to code, so the land bank would just inherit all the problems the banks are having.
    The purpose of life is a life of purpose

  14. #14
    Cyburbian DetroitPlanner's avatar
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    Quote Originally posted by ddomin4360 View post
    Let's consider a few more reasons to not just give away the buildings. Though it would be great in a perfect world.

    Here are two issues I see.

    1) People getting angry that their investment (their home) decreases in value because local buildings/homes are being given away. If it were to to become a nationwide free home giveaway then this problem would affect homes in most/every district.

    2) Lower homes values means more people upside down on their mortgages. Which means more mortgage defaults which means the banks lose money and are stuck with more worthless properties.
    Why on earth would that be the case? Open and dangerous properties that have little hope of being rehabbed are more taxing on the value of your home than having an empty lot next door. Empty lot means opportunity while open house means danger.

    I've lived through this nightmare. First the homes behind me were foreclosed then one to either side. Drug dealers moved into the one to the south and it burned. The home to the north, I came home from my parents to find someone had stolen the windows out of it. During that same month I was broken into three times. In order to get out, I had to pay off the home and donate it to charity. I would have been much better off to have a few vacant homes torn down by the banks, then the others may not have gotten to this point.

    Areas with lotd of abandoned homes will evenutally have property valuies so low that rehabbing them will never make sense. Many of these homes have been stripped of anything useful. You would need to sink $25,000 to $30,000 minimum to have a home thats maybe worth $15,000.
    We hope for better things; it will arise from the ashes - Fr Gabriel Richard 1805

  15. #15
    Cyburbian dw914er's avatar
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    Quote Originally posted by mendelman View post
    In such a situation, the neighborhood is better off with vacant lots than vacant and abandoned buildings
    Yes, I agree. But it brings a different element to the equation since you could have a neighborhood with several empty lots. I think it can present an opportunity for neighborhoods if they're destroying the houses beyond repair.
    Last edited by dw914er; 13 Oct 2011 at 4:37 PM.

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    Quote Originally posted by DetroitPlanner View post
    Why on earth would that be the case? Open and dangerous properties that have little hope of being rehabbed are more taxing on the value of your home than having an empty lot next door. Empty lot means opportunity while open house means danger.

    I've lived through this nightmare. First the homes behind me were foreclosed then one to either side. Drug dealers moved into the one to the south and it burned. The home to the north, I came home from my parents to find someone had stolen the windows out of it. During that same month I was broken into three times. In order to get out, I had to pay off the home and donate it to charity. I would have been much better off to have a few vacant homes torn down by the banks, then the others may not have gotten to this point.

    Areas with lotd of abandoned homes will evenutally have property valuies so low that rehabbing them will never make sense. Many of these homes have been stripped of anything useful. You would need to sink $25,000 to $30,000 minimum to have a home thats maybe worth $15,000.
    Perhaps I made a typo somewhere. I support the idea of turning the houses into vacant lots for the reasons I mentioned. I do not support the idea of giving them away.

  17. #17
    Cyburbian DetroitPlanner's avatar
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    Quote Originally posted by ddomin4360 View post
    Perhaps I made a typo somewhere. I support the idea of turning the houses into vacant lots for the reasons I mentioned. I do not support the idea of giving them away.
    Thanks for clarifying. I agree. Many times these would end up in the hands of either those who could not afford to fix them up or slumlords looking to do some speculation.
    We hope for better things; it will arise from the ashes - Fr Gabriel Richard 1805

  18. #18
    Cyburbian Linda_D's avatar
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    Quote Originally posted by DetroitPlanner View post
    Why on earth would that be the case? Open and dangerous properties that have little hope of being rehabbed are more taxing on the value of your home than having an empty lot next door. Empty lot means opportunity while open house means danger.

    I've lived through this nightmare. First the homes behind me were foreclosed then one to either side. Drug dealers moved into the one to the south and it burned. The home to the north, I came home from my parents to find someone had stolen the windows out of it. During that same month I was broken into three times. In order to get out, I had to pay off the home and donate it to charity. I would have been much better off to have a few vacant homes torn down by the banks, then the others may not have gotten to this point.

    Areas with lotd of abandoned homes will evenutally have property valuies so low that rehabbing them will never make sense. Many of these homes have been stripped of anything useful. You would need to sink $25,000 to $30,000 minimum to have a home thats maybe worth $15,000.
    Exactly this. People familiar with the housing issues in cities like Detroit, Buffalo, Cleveland and similar Rust Belt towns know the kinds of houses and neighborhoods this article is talking about.

    My issue with the article is that the author tries to claim that these demos are part of the housing crisis that devastated the housing markets in Florida, Arizona, California, etc. when that is not the case at all. There never was a real estate bubble in these older neighborhoods, and the causes of Cleveland's foreclosure issues (like those in other cities in the region) has much more to do with massive manufacturing job losses over several decades than with giving mortgages to people who couldn't afford to purchase McMansions in the 'burbs.

    These homes are NOT rather recently built suburban homes that were owner occupied until their owners hit hard times. These are older, inner city homes that were most likely owned by absentee landlords and real estate flippers who did minimal, if any, repairs over several decades. These homes were likely already foreclosed and/or abandoned well before the housing crisis hit. Many have been sold and re-sold through tax auctions or on the Internet.

    Vacant lots are infinitely preferrable to these abandoned, rotting houses that are a haven for druggies, perverts, arsonists, dog-fighting gangs, and other assorted criminals.

  19. #19
    Cyburbian Tobinn's avatar
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    All things being equal you'd think that the easiest thing to do is for the mortgage holders to figure out some way, any way, by hook or by crook, to somehow to get, let or otherwise arrange, the current occupants of homes in foreclosure to stay in the home. Yes, some people just can't stay, maintain or keep up with a house for whatever reason but I'll bet there's plenty that would love to stay in their homes. If they could and work out some sort of arrangement it would seem that every one wins - the mortgage holders save themselves foreclosure money, demo money, upkeep money; the homeowner gets to stay in their house, the community gets one less opportunity for drug dealers and riff raff, yada yada yada moving in.

    Of course part of the problem is that the nice folks you make your mortgage payments to are usually just paper pushers and don't actually own the mortgage and have very little vested interest in actually helping homeowners stay in their homes. For example, I pay Wells Fargo but it's Freddie Mac that actually holds my mortgage. WF has ZERO interest in doing anything to help anyone stay in their home if they're having trouble making the mortgage. The way I figure it, if you pay your mortgage Wells Fargo makes money, if you fall behind penalties accrue and if you pay those penalties WF makes money, if you don't you go into foreclosure and WF doesn't really have skin in that game, if the house gets sold to someone else (short sale or not) WF will likely get paid something. The main way WF gets screwed is if your mortgage gets modified to lower payments either through interest reduction of principal reduction.

    Of course, what the hell do I know about making money - I'm an urban planner; 'nuff said.
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  20. #20
    Cyburbian wahday's avatar
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    Quote Originally posted by Linda_D View post
    My issue with the article is that the author tries to claim that these demos are part of the housing crisis that devastated the housing markets in Florida, Arizona, California, etc. when that is not the case at all. There never was a real estate bubble in these older neighborhoods, and the causes of Cleveland's foreclosure issues (like those in other cities in the region) has much more to do with massive manufacturing job losses over several decades than with giving mortgages to people who couldn't afford to purchase McMansions in the 'burbs.

    These homes are NOT rather recently built suburban homes that were owner occupied until their owners hit hard times. These are older, inner city homes that were most likely owned by absentee landlords and real estate flippers who did minimal, if any, repairs over several decades. These homes were likely already foreclosed and/or abandoned well before the housing crisis hit. Many have been sold and re-sold through tax auctions or on the Internet.
    I don't know about this particular situation, but I do know that in many places, low income homeowners were not only hard hit, but subprime lenders pracxticed poredatory lending on these populations. Subprime mortgages often had low interest rates for the first year or two and people who already had mortgages were lulled into refinancing to take advantage of this short term gain (and often were not properly informed of the long term implications or were willfully ignorant). Additionally, I heard a story on the radio back in 2009 about an older woman in a low income neighborhood in Detroit who owned her home outright and was "encouraged" to take out an interest-only for 5 years second to get some desperately needed cash. After the 5 year window, the rate was adjustable and she ended up losing the home.

    So, I can see how the mortgage meltdown and specifically the subprime lending debacle could have had a big impact on these poor, inner city urban neighborhoods. Its not an issue of the "bubble" where people bought for inflated prices, only to have the bottom drop out. Its the predatory lending that targeted low income folks and communities of color in particular (and it has been documented that lenders requested info specifically on such demographics - seniors were another target), lulliung them into buying a house they could never afford or refinancing a home they were already in.
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  21. #21
    Cyburbian Linda_D's avatar
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    Quote Originally posted by wahday View post
    I don't know about this particular situation, but I do know that in many places, low income homeowners were not only hard hit, but subprime lenders pracxticed poredatory lending on these populations. Subprime mortgages often had low interest rates for the first year or two and people who already had mortgages were lulled into refinancing to take advantage of this short term gain (and often were not properly informed of the long term implications or were willfully ignorant). Additionally, I heard a story on the radio back in 2009 about an older woman in a low income neighborhood in Detroit who owned her home outright and was "encouraged" to take out an interest-only for 5 years second to get some desperately needed cash. After the 5 year window, the rate was adjustable and she ended up losing the home.

    So, I can see how the mortgage meltdown and specifically the subprime lending debacle could have had a big impact on these poor, inner city urban neighborhoods. Its not an issue of the "bubble" where people bought for inflated prices, only to have the bottom drop out. Its the predatory lending that targeted low income folks and communities of color in particular (and it has been documented that lenders requested info specifically on such demographics - seniors were another target), lulliung them into buying a house they could never afford or refinancing a home they were already in.
    Wahday, I agree that the kinds of practices you described are another well-documented cause of abandoned properties in many Rust Belt cities. In addition to predatory lenders, there were also predatory real estate brokers who assisted property flippers in selling structurally deficient but cosmetically decent homes to unwary buyers. My entire complaint about the article, however, remains that the author is describing oranges and trying to say they're apples just because they're both spheres. The problems with foreclosures and abandonment in Rust Belt cities like Buffalo, Cleveland, Detroit, Milwaukee, etc predated the current housing/mortgage crisis in parts of suburban America and has entirely different roots. If there had never been a housing bubble anywhere and no mortgage meltdown in 2008, there would still be foreclosed and abandoned houses in parts of Buffalo, Detroit, Cleveland, etc.

    This kind of poorly written article makes the massive real estate problems in the bubble markets appear to be nation-wide when they aren't. It also makes it easy to dismiss some of the economic consequences of major changes in the economy and population migration.

  22. #22
    Cyburbia Administrator Dan's avatar
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    Quote Originally posted by Linda_D View post
    Exactly this. People familiar with the housing issues in cities like Detroit, Buffalo, Cleveland and similar Rust Belt towns know the kinds of houses and neighborhoods this article is talking about.
    The situation in Cleveland was quite a bit different than Buffalo. There was a bubble in Cleveland, although prices didn't rise to the level of unaffordability that was seen in many other cities across North America. During the boom, the typical house price in the suburb where I lived, South Euclid, was in the $150,000-$200,000 range, with much higher prices in the more exclusive Belvoir area. (South Euclid generally feels like Kenmore/Tonawanda.)

    Mortgage companies also targeted the Cleveland area for oddball mortgages; no down payment and/or a variable rate. Less-affluent residents of the City of Cleveland flocked to the inner-ring suburbs, and their good school districts. However, when rates adjusted, the once-inexpensive bungalows these new homeowners once enjoyed suddenly became unaffordable. Many new homeowners did not anticipate the costs of maintaining a house, Also, the Cleveland area suffered double-digit unemployment, with many homeowners losing their jobs, and unable to sell. There were five foreclosures on my end of the block. Shaker Heights, Cleveland Heights, University Heights, and the more lower-middle-class southern inner ring suburbs of Brooklyn, Garfield Heights, Maple Heights and Bedford Heights got hit hard.

    Buffalo never had the sharp increase in real estate prices. It didn't have lower income city dwellers snapping up houses in the suburbs with zero down/2% ARM mortgages. It really wasn't affected by the recession; the region continued along on its 40+ year malaise, with 7% unemployment, and home prices increasing at a rate slightly below inflation, same as it ever was. Buffalo's housing issues are a different beast entirely, IMHO stemming from post-WWII affluence and subsequent obsolescence of its absolutely massive inventory of worker's cottages. Homers romanticize the old East Side, but for the most part, it was the turn-of-the-last-century equivalent of what could be the world's largest trailer park, its tens of thousands of small, cheaply-built telescoping houses not much different than the single-wides of today. Cleveland and Detroit don't have same percentages of worker's cottages of Buffalo, and to some extent, Pittsburgh with its small frame rowhouses.
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