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April 03, 2008

Problems

The Big Picture | Lender-Abandoned, Non-REO Foreclosures

"There are areas in some parts of the country where property values are quite low, and there are no large-scale expectations of them going up. They don't know that they will ever recoup those costs," and so the lenders never re-take title to the properties, allowing them to become derelict." (emphasis added)

There you have it: Abandoned, Non-REO Foreclosures.

The local market conditions are what seems to determine the abandonment decision. In a region where the job and real estate market is doing anything better than "a little soft," I would surmise that abandonment makes no sense at all.

However, at a certain point, in a weaker region, with declining neighborhoods, certain lenders might make the decision to simply walkaway from a large swath of (potential) real estate holdings, on the simple basis that it might be cheaper to do so.

There are very significant costs to this. Consider what the potential impact of these property abandonments by the lender means:

- Total write off of the loan;
- Boarded up homes / neighborhoods;
- Loss of tax revenue to the local school district or town;
- Long delays before the local town, municipality, or state can take possession due to tax arrears.

Thus, these incomplete foreclosures/abandonments can have very significant impacts.

If this becomes widespread, we could be in the process of creating an entire new universe of suburban slums . . .

Actually, I suspect we would end up creating an entire new universe of legal restrictions on just how a lender can handle an REO, or how rapidly a state actor can take possession. (via Instapundit).

Posted by Bill Quick on April 3, 2008 04:58 PM | Permalink

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