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Return to Zombie Homes

September 7, 2014

Press of Atlantic City: “Bottom Lines: New numbers must add more cause for worry” by Keving Post:

New Jersey’s courts stopped lenders from selling foreclosed homes. Banks have since been allowed to start working through their inventory of repossessed houses, but the process has remained sluggish. As a result, an increasing number of foreclosed homes in New Jersey are what’s considered zombie foreclosures — houses that the prior owners have vacated before the foreclosure is completed. RealtyTrac, a real estate information company in Irvine, California, said zombie foreclosures in New Jersey increased 58 percent in the second quarter from the year prior, even as they declined nationwide.

As in previous stories of zombie foreclosure we see the RealtyTrac vocabulary and attempt to shift blame from the banks who caused this crisis onto the courts who are there to protect the system and the individuals. Those protections take time, but the costs of that time are burdensome.

TribTown: “Neighborhoods, cities contending with abandoned properties, ‘zombie homes’ from housing crisis” by David Klepper and Carolyn Thompson, Associated Press:

Labeled “zombie homes,” the properties are no longer under control of their owners with pending foreclosure, but not yet under control of a bank or lender.

zombie homes are a problem throughout the U.S. as communities deal with the fallout from the housing crisis, with one estimate suggesting that one in five houses facing foreclosure are vacant.

That’s a strange use of the word ‘control’. The homes are still legally under the control of the abandoning homeowner, but the banks have an unsettled legal claim that exceeds the owner’s interest, on paper. The banks don’t actually want the house, they want the payments or to sell it off their books, but everyone’s stuck in a Mexican standoff while the house rots.

Klepper and Thompson hint at the most obvious solution in their explanation of what happened for the Buffalo home of Richard Slaper;

a legal advocacy group helped Slaper modify his mortgage and he moved back in.

“My story had a happy ending,” Slaper said.

Unfortunately, many banks are not negotiating. They are not even complying with the rules that require negotiation and in some cases the banks directly induced the default by telling the borrowers that they would only be able to negotiate after default and then never negotiating.

The Associated Press article says “zombie homes are a problem” but the mortgage crisis is far bigger than the abandoned properties, it’s also all the nonperforming loans. Many of these loans aren’t even in the court system anymore. There are just banks hanging in the wings, waiting while their phantom interest grows on paper. It’s that looming threat that pushed some people to abandon their homes. The zombie homes are a symptom and while addressing that symptom we must also seek the source of problem: the banks unwillingness to negotiate fairly to provide reductions to both interest-rate and loan principle for those homeowners hurt by the the artificial inflation in the run-up to the 2008 crisis. The banks were instrumental to causing that crisis and received government assistance but have not passed that assistance to the homeowners.

The article also mentions the work of Attorney General Schneiderman in advocacy on abandoned homes. Earlier this week Thompson and Klepper published another AP story from Buffalo, at ABCnews: “Bank Didn’t Lend to Blacks in Buffalo” referring to Schneiderman’s new law suit against alleged lending discrimination:

Schneiderman said the talks failed because the bank refused to accept responsibility for the alleged discrimination.

Why’s it always gotta be about race?

Of course the banks refuse responsibility, they refuse responsibility for everything. But there is some irony in juxtaposing these two Schneiderman stories. On the one hand blaming the banks for lending to people who couldn’t afford to keep their homes by holding banks responsible for the property’s maintenance before the title transfers, while on the other hand blaming the banks for not increasing this over-lending to more communities. Is the moral of the story that if you are going to pillage be an equal opportunity pillager?

Obviously, race should have nothing to do with home lending, but if we solve that problem with rules that force the banks to give loans where they aren’t interested then can we really blame them when those loans fail? Yes. The banks are to blame on both sides of their perverted capital development schemes. Even in banks, it can’t be allowed to be just about the money. Corporate persons must have greater moral responsibility.

If it’s only about the bottom line then this political fight is already lost. We need communities of people who are interested in working together to build successful communities. Banks that lend based on spreadsheet-algorithms are to be blamed on both sides of their equations (for their unscrupulous lending practices and for not offering them equally to everyone). Instead of blame, the important question remains: how can we get the community members back into their homes and help the community to thrive? How can we get everyone back in the black? The unnamed advocacy group reportedly did it for Buffalo‘s Mr. Slaper. Can we do this for more people? Government should provide incentives to the banks to negotiate with current borrowers to help restore communities!

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From → debts, money

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