California Cities Consider Seizing Mortgages

Fox News ^ | July 5, 2012 | WSJ/NICK TIMIRAOS

[vette6387]

“In my experience, it’s the homes in the process of foreclosure”

Well, here In Monterey County, where there are some pricey homes being foreclosed upon, the problem is getting the banks to take possession of the delinquent properties. We have friends who saw their $850,000 home go down by 50% so they bailed. After almost two years of living in the home without making a single payment for anything, they had to “threaten” the bank with just walking away and leaving the keys on the kitchen table to motivate the bank to actually foreclose. From my perspective, the banks are the bad guys. Now that thanks to all their greedy schemes to make money the “old fashioned way,” which is to steal it from honest people, the banks are now left with the pile of crap they created. Now, the banks really don’t want to foreclose because in so doing, they have to show the “asset” on their books at its current value. I just sit here wondering if I will ever see anyone frogwalked out of a bank or brokerage house and off to jail. More than likely though, they are all out at the Hamptons having a great summer on the working man’s money!

[dalereed]

“This is no different than the city coming in and writing your mortgage holder a check buying down your principle to current market value. What could possibly be wrong with that?”

Everything!!!!

Anything that lets the deadbeat curent non paying occupant remain in the house is wrong!

[Soul of the South]

“What’s not being said in this article is that bank-owned properties are becoming a blight in many areas as the banks refuse to mow the lawns, keep the homeless out of them, and etc. with all of the costs associated with those problems being picked up by the cities.”

Very true. Plus they are not paying homeowner’s association dues in effect transferring these costs to the property owners who are paying the common expenses. Even worse they, and developers, have gotten states to limit the the number of months of past due homeowner’s association fees that can be collected when a foreclosed property is sold, sometimes as little as 2 months, no matter how many months the property is in arrears. Of course those same politicians force past due taxes to be paid in full.

[Soul of the South]

“What’s not being said in this article is that bank-owned properties are becoming a blight in many areas as the banks refuse to mow the lawns, keep the homeless out of them, and etc. with all of the costs associated with those problems being picked up by the cities.”

Very true. Plus they are not paying homeowner’s association dues in effect transferring these costs to the property owners who are paying the common expenses. Even worse they, and developers, have gotten states to limit the the number of months of past due homeowner’s association fees that can be collected when a foreclosed property is sold, sometimes as little as 2 months, no matter how many months the property is in arrears. Of course those same politicians force past due taxes to be paid in full.

[ChildOfThe60s]

They don't have to pay the mortgage amount: under the takings clause of the 5th Amendment, they only have to pay the current market value to the bank or mortgage holder, and then re-issue the mortgage at the current value.

You are completely right. Thanks for pointing that out. I realized it after I let the piece digest in my little brain.

But what the city is doing is pure theft. The lenders gave real money. Guy borrows $500k and spends it on the property. City takes the property, gives the lender $250k along with a FU very much. That loss of $250K is real. Everyone can do without money except the government(s).

Eminent domain is now like the commerce clause. It means what a socialist bureaucrat says it means on the day he says it. IOW, carte blanche to steal.

[ChildOfThe60s]

Uh, I was being sarcastic. And technically I was wrong. The city is a thief of a sort. It is stealing the difference between the current market value and what the lender is owed, from the lender, then flushing it.

With all the points being made in this thread, it is still useful to remember that the borrower *asked for the loan*. And spent the loan on the property. If you borrow money and spend it stupidly or carelessly or ignorantly, the lender is still out the money and you still owe it.

[pierrem15]

I agree-- if the city takes the property, the lender moves from an unrealized loss of $250K to a realized loss of $250K. Given the current disposition of the courts to always cede more ground to our Lords and Masters, err, I mean our 'elected' officials, I doubt any bank would make much headway in trying to force the city to make up the loss.

But I'm not a lawyer, so who knows.

I think the only thing really stopping this is that the city probably doesn't have the cash to buy up many properties, and given Stockton's bankruptcy, I doubt there are many investors willing to lend any city in California any money right now.

[pierrem15]

But in California, a mortgage lender can’t get a deficiency judgment— California is a ‘no recourse’ state after foreclosure. In the case of a condemnation, though, I’m not sure how the law would apply. I would assume that the courts would hold that the lender got possession of the market value of the property, so the lender would still have no recourse against the borrower for the difference. I wonder if the IRS would consider it a ‘gift’ or capital gain, however?

[Rebelbase]

This will backfire in spectacular fashion.

Who in the hell would invest in mortgage paper that can be seized by a municipality?

Since refusal to lend in a specific location can be construed to be redlining, the mortgage companies will exit the entire state.

[ChildOfThe60s]

I think the only thing really stopping this is that the city probably doesn't have the cash to buy up many properties,

Hmm, that might not stop the city. *If* the city can line up investors before taking the properties, then the city could get payment from them at the same time it has to pay the mortgage holders. Flip the property.

I have to wonder who would want the properties, even at so called market value. Who is going to guarantee them repayment from these already defaulted homeowners? I'm guessing that many of these homeowners couldn't meet the payments required to finance the market value. So the notion of keeping these people in the houses goes up in smoke. Investors with any brains wouldn't buy the properties unless they believed they could either collect the mortgage payments from the residents, or boot them out and sell or develop the property for a profit. All of which sounds rather unlikely.

If the city is broke, it can't take the property without paying market value. And likely become the mortgage holder aka landlord. I suppose another route could be to take available properties for unpaid property taxes.

It must be galling for California socialists not to have money to throw at this.

[Brad from Tennessee]

[I would not normally approve of this kind of thing, but it makes far more sense to keep people in a home than to evict them just to let the home go to rot and ruin and to become a blight.]

I opposed the “Stimulus” act because it was a colossal scam. But I figured if the government was going to throw almost a trillion dollars at a problem it should focus on housing. This could include: buying up mortgages and restructuring the debt both for homeowners in trouble and those not in trouble; establishing a maintenance program to put families in abandoned houses in exchange for interior and exterior upkeep; buying up abandoned houses in key markets and demolishing them to lower excess inventory.

[Lancey Howard]

California, lol.

Sheesh... That place has been swirling down the toilet under Democrat domination forever. Seems like the nation has been waiting for the final “glub glub” and the disappearance of that monstrous load for a decade.

Anyway, if the Democrats can keep coming up with ingenious plans like this one the wait will be shorter.

[null and void]

Since refusal to lend in a specific location can be construed to be redlining, the mortgage companies will exit the entire state.

And the downside for the counties is what here?

The county government becomes the sole lender, they get the full mortgage payment, the full property taxes, and they get to keep all the money in the county.

Investors will be wooed into playing by tax free bonds, paid for by mortgage payments and secured by "real" property...

[GVnana]

I'm not a friend of B of A, but let's be real about the situation. Banks write loans backed by FannieMae and FreddieMac. Those are the entities that write the rules. If you walk into any Chase Bank in CA, you'll see a big placard citing their compliance with the Community Reinvestment Act.

Why do you think that nearly 100 years of lending standards went out the window?

'Cause our government said so. That's why. Some were more in bed with the politicians than others -- notably Countrywide Home Loans -- which in the end was nothing more than a government money laundering operation.

[MeganC]

Here’s a developing story for those of you who still think that the poor bankers are just woefully misunderstood and are being unfairly persecuted:

http://www.freerepublic.com/focus/f-news/2903523/posts

[Tulane]

This may come as a shock to you but retirement and pension funds were already been hit hard by the mortgage meltdown.
Just what good do you think is happening now with homes foreclosed, allowed to decay, be vandalized, stripped of appliances, stripped of wiring, stripped of liveability?

It’s becoming a death spiral in places. What solution do you have? Add to the homeless population, let the neighbors decay, let local economies circle the bowl?

__________________

Ahh...I love the smell of snark in the morning, its the smell of victory.

Housing prices were inflated. Let them come down to market levels and people will be able to afford them. Only a true statist would support the type of market tinkering and the abrogation of creditor’s rights that this article suggests.