A common question in our two markets of Indiana and Florida is when is the bank going to put that vacant home on Elm Street on the market. The street name is fiction to protect the innocent! So common, that also is the creativity of my response.
“I don’t know!”
Why don’t I know? Why does this happen? What about the values of the homes in the neighborhood where the vacant home sits? Who is going to mow the lawn, trim the trees, fix the fence…on and on.
One of the reasons I am constantly so negative about all the efforts to save defaulting homeowners is that these efforts often seem to forget the affect a defaulting homeowner has on a neighborhood. People in trouble with their mortgages do not take care for their homes for lack of cash and the expectation they are going to lose the home. They often abandon the home and it takes months for anybody to figure it out. I am now hearing stories of homeowners still working on a HAMP modification and they have abandoned their home!
The reality of the foreclosure mess is that people have issues that can’t be fixed with a loan modification. In many circles this is now accepted but the truth, whispered in corners, is that the government is simply trying to slow the number of foreclosed homes on the market down so that values hold up. A nice thought, but one that seems to have come out of a think tank and not Main Street. (Ah..there is Main Street again….).
Now, we can add a new cause to why your neighbors home has sat vacant for the last year. Indiana and Florida are both what is called Judicial Foreclosure states…meaning a Judge signs off on the foreclosure allowing it to then be sold by the local authorities. Florida courts are so backed up they are now requesting $9.6 million from the state to hire needed case managers to process the backlog. Now, this is particularly interesting since last year these same legislators passed a law requiring a mortgage company to provide modification conferences to any homeowner requesting one. From what I am told, the request of these conferences is also taxing the system, and has become a common suggestion from attorneys advising their clients as to delay tactics to use to delay the foreclosure.
Of course they are. But, that means these cases sit in limbo during these conference periods. More delays.
In Florida, Barclays Capital estimates there are over 500,000 foreclosure dockets waiting for action. The question, that I have asked in good faith for over two years now, is when do we decide that the costs of these delay tactics is not worth the harm to our communities? When does it become the right thing to let the market finish this correction?
As an aside, and a post for another day, it appears the new tactic will be to just forgive principal. An interesting development to watch. Will these new reduced loans help states like Florida clear out their backlog? Or will we just continue to stretch out the volume of people living in limbo wondering who is going to clean up the vacant house next door?
