The cost of maintaining foreclosed properties abandoned by lenders and investors may reach as much as $50 billion this year – and taxpayers will foot the bill.
By walking away from the properties on which they have foreclosed, lenders are forcing local governments to assume their responsibilities, making investment banks the newest breed of slumlord, says Peter Sepp, vice president of the National Taxpayers Union.
For instance, Boston taxpayers spent $10,120 last year maintaining just one abandoned, foreclosed condominium on Hendry Street.
According to public records, one of the three apartments belongs to Morgan Stanley. Another one belongs to Lone Star Funds, a Dallas leveraged buyout firm.
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Unfortunately, determining precisely who owns defaulted mortgages — and is therefore responsible for the foreclosed property — is proving difficult. That’s because mortgage notes put in securitization pools typically appear as data transfers rather than actual legal transfers.
If the mortgage note in question has not been legally transferred and assigned to the securitization trust, there is no legal standing to foreclose, a problem that has led judges in five states to halt foreclosure proceedings.
Consequently, as foreclosures increase and the value of property subsequently drops more companies are simply walking away from their responsibilities to take care of foreclosed properties.
That leaves cities and towns – and their taxpaying residents – holding the bag, just as tax revenues, which are based on property values, begin to drop, too.
Since every foreclosed reduces the worth of surrounding properties, the increase in foreclosures and the decline in real estate values may lower the tax base for cities and towns by as much as $356 billion in 2008 and 2009.
Almost 1 million U.S. homes were seized last year, the highest ever and more than double the number seized in 2006, according to foreclosure data company RealtyTrac. Mark Zandi of
Economy.com estimates another 1 million will be foreclosed upon this year.
Federal Deposit Insurance Corporation figures show that U.S. banks owned $12.1 billion of foreclosed real estate at the end of last year, double the year-earlier amount.
"Our kids and our grandkids are going to be paying to take care of these properties, because the cost, at least at the federal level, will have to be financed through borrowing,” Sepp says.
U.S. Senate Majority Leader Harry Reid has introduced legislation authorizing $4 billion of federal money — four times the amount proposed in three other bills — to help cities maintain or simply demolish foreclosed properties.
Morgan Stanley says it only held the Boston property for only a day before selling it back to WMC Mortgage, the original lender who was obligated to repurchase under the terms of their agreement. The bank sold it for $299,000 two years ago and it is now on the market for $54,900.
However, the title deed shows that the top-floor unit was transferred to a Morgan Stanley subsidiary after the homeowner defaulted on the first payment and no deed transferring the property back to WMC was filed.
Cleveland Housing Court Judge Ray Planka, meanwhile, has found a small way to take action against irresponsible owners of foreclosed properties:
He posts a warrant list of people and companies that have failed to answer a summons or pay a fine for building code violations on his court's Web site.
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