It is a simple option... isn't onerous, and doesn't involve the government spending billions of our dollars...
Simply make banks responsible
As it stands, in many jurisdictions, banks aren't responsible for maintenance, taxes, HOA fees or any other impacts their foreclosed properties might have on the community. So, if a block is foreclosed, the homes go to crap while the banks dither at dealing with the inventory. The cities lose valuable tax revenue while they are already struggling because of diving property values. HOAs lose chunks of their budgets trying to maintain properties in their neighborhoods... while not collecting fees from those same properties.
Give banks the bill for THEIR inventory.
This would accomplish several things... to start with, it would tilt the equation from the banks back toward the consumers. As it stands, the banks have little risk in allowing properties to go into foreclosure. Their carrying costs can be invisible.
Short Sales would have a whole new complexion... and even loan modifications. Right now, the banks have little to lose by NOT negotiating aggressively in a short sale or loan mod situation. Currently, if they take back the property, they might not be hurt as much as if they agree to concessions. As a business, they are DUTY BOUND to not try to lose more money. This would increase their risk in holding the property by increasing their exposure to expenses.
I know that it isn't as glitzy as a program costing tens of billions of dollars with a nifty name. But it might be more effective at slowing foreclosures and moving properties through the system when they are foreclosed.
What do you think?
That's a great idea and I'd love to see that in South Florida. But I'm not sure how that prevents the Govt from bailing out the big guys who got themselves in trouble.
Lane -
What a capital idea. But it won't make it out of the Capitol. The banks give too much capital to the Capitol.
They donn't have any left to pay their neighborly fair share.
Congratulations this post is now featured in the Silent Majority Group of Active Rain.
Lane, our city imposes a lein on the property for failure to maintain, pay the taxes etc. Unfortunately, a potential buyer is the one who would get stuck with the bill, should they choose to buy the property. I'm not sure why, if our local municipalities can stick it to us for not abiding by city or county code, but can't stick it to the banks. I agree, they should be held 100% responsible!
Lane - interestingly, I beleive Atlanta made the Realtor responsible for property maintenance last year, or at least it was proposed. I agree, it should be the owners responsibility, whether individuals or corporate owned.
The problem is there are different standards per region on the responsibility. The banks here must stay current on the property taxes the same as any individual. Unfortunately, the County does not make any legal attempt at collection beyond sending the bill in the mail for 2 years. Good for the individual, better for the bank. In the end, whatever fees are charged to the bank will be passed along to all of us as consumers.
Great thoughts Lane. I think the banks should take a lot more responsibility for their foreclosures. Perhaps then we'll be able to see some co-operation as we work short sales FOR THEM!! Something has to give as the saying goes... Greed got us into this mess perhaps co-operation can get us out of it...
That is a good idea. Another way to encourage the banks would be when a property deteriorates, the municipality should condemn the property and knock down the house as a saftey hazard and send the bill to the bank. That would make banks less likely to foreclose.
Tchaka - It wouldn't stop the bailouts, but it might make the banks cycle the property in inventory and negotiate a little more to keep properties out of inventory.
Terry - We agree... That right there should make a beam of light shoot up from ARHQ...
Ron -The fees are only passed along to the consumers if they are willing to pay the price. They can't unilaterally determine price.
Paul - Just taking the property for failure to pay taxes or maintain would be funny...
Lane - Based on your last response, I must say that I am on board with your idea. Good thinking!
I'm not going to be popular on this blog, but here are my thoughts anyways.
A mortgage is a contract. The lender holds first lien position on title and all other liens and municipality charges come secondary, even property taxes.
IF the banks were required to maintain properties beyond basic "health and safety" it will cause mortgage rates and fees to rise to a new level.
IF the banks had to pay for keeping up foreclosed properties then expect additional fees to good paying borrowers who will end up paying the bill.
Why should my client with a 800 credit score and 20% down foot the bill for the mistake those banks made in the past few years? That is what would happen. They would pass the cost down to the new borrowers.
I believe banks should be more reasonable with short sales and make the process easier. I agree with most of what you folks had to say.
I also believe a contract is a contract, the day our government can re-write a contract concerns me.
It would be nice if there was an easy solution, I just don't see it.
Great post!
Melissa - I don't see why this should be an unpopular view....I find what you've written to be rather accurate. Then again, I'm not the most popular. >:-)
Melissa - I don't think that taxes come behind a mortgage... And I agree that a contract is a contract. To check that, pay your mortgage but skip on the taxes and see how long it is before the government comes calling. I think they will happily take the house... and the bank gets to buy it back if they want to keep their interest in it. The government doesn't have to buy out the bank in order to auction the property.
And my point is that while I own a property, I have to maintain it a certain way or be fined by the city or county. Why should the bank be off the hook as an owner? Any other corporate entity is held to the same standard as a private owner. Only goverment (FHA, VA, HUD) gets away with it... and banks.
Again, the market speaks here. If one bank isn't charging the fees, they will get more business... So, unless it is across the board (like a tax), there will be winners and posers... the losers will be banks that are holding properties.
BTW, you are welcome to disagree with me. I actually like it. Don't worry about being popular, just respected. You make good points and I appreciate that.
Tchaka - I'm still amazed that Terry and I agree on something...
Lane- Your right about taxes. Thanks for the nice reply to my comment.
Nice to find folks who can talk about something without sarcasm or argument, your a gem.
Melissa - I love to be both sarcastic and argumentative... but that wouldn't have been effective. Funny perhaps...
And Tchaka - Even when I don't agree with you, I respect you. Don't sweat your popularity here.
Tchaka & Melissa agree??? LOL this is one for the record books..... just a joke, we respectfully disagree often.
I still believe a contract is a contract. We will get through this mortgage mess in the next several years. After we do, I do NOT want our government or my mortgage company to have the ability to re-negotiate my contract or note.
It's a slippery slope here. If we as a nation require mortgage companies to alter contracts, then where does it end?
If you have a private note will the government be able to tell you it is null in void cause your neighbor was too big to fail? I do not want the government to set this precedent.
That's what bothers me. I believe in accountability and responsibility.
Melissa - I agreed with Terry about something... so I'm not shocked by anything now...
i totally agree. i was researching a market im about to relocate to and when looking at the stats i realized that it's the bank's fault that the market in that area is still suffering. the bank properties stay on the market way longer and settle for much less than the seller listings. they refuse to list at the correct price at the onset of the listing and because of it, the market is stuck in this rut. if they stop getting offers all together, maybe they will appreciate the consumer. i dont normally deal with them unless i have to. my buyers move with a plan. they want to find a house and have a contract quickly. they can't lock in their interest rate until the bank receives an a.o.s. we're not kissing bank tush to buy their property when they are plenty of reasonable and realistic sellers would love to get the deal done NOW...
Lane you have my vote as this being the best blog I have read since joining the AR social network. Here are the reasons: 1) It's a great idea, 2) Finally something regarding Real Estate that may be helpful to this economy and not the usual political bickering, 3) You and Terry finally agree on something, 4) Maybe we can find some solutions to our foreclosure problems WITHOUT government throwing more money at it.
Unfortunately the banks are always going to find ways to pass along costs to someone. However everything that we can do to discourage them from foreclosure can't hurt. What's it going to take to get your idea moving?
How about all those "fees" the banks charge? If they think they can make more money on fees by doing a foreclosure than continuing a modified loan they will take the shortcut and the quick buck before having to wait for the income. That's another part of this foreclosure problem.
Also time for the banks to cut bait and move on. In other words, not just loan modifications on interest rates but cut the losses (the principal itself) and get on with good business.
Lane, excellent post and idea - how to go about implementing?
Don't expect it to happen, Congress is owned by the banks.
Dee - The banks NEED to be subject to the same rules as everyone else. Including market rules... even when they want to suspend the laws of supply and demand.
Dan - The bank's job is the make money. I don't think it should eb done unethically, and lately it hasn't been honest... but they have met the letter of the law. But, since they don't operate in a vacuum, they can't just tack on costs if there are other homes wihtout those costs tacked on...
Janice - It would require local and regional governments to stand up to banks all over... at the same time. I don't see it happening.
Dale - It isn't just that...