Banks not taking houses post-foreclosure = shadow inventory threatening economy

rallydog is correct. I know people who haven't made a payment in 18 months and are still in there homes.theres a huge wave of foreclosures coming and massive inventory. ask yourself one question. probably 50% plus of all home sales in the last 50 years took place between 1999-2007. if most of those home are underwater and some underwater by 30-50% how many people do you think will keep paying with that type loss? if you were underwater 500k-1 million what would you do even if your credit was good? you'd walk. this is not over.

 

This has been known for a while.The banks have been hording foreclosures because they can.

When you have unlimited free taxpayer money you don't have to work with borrowers.

 

lets say the bank decides that it will foreclose on the house. what is the process? how does a bank actually kick the people out? what if the people simple won't leave?

 

housing “shadow inventory” = floating oil tankers waiting for price to go up.

 

this is a good point and I have thought the same. I think this will be a form of housing subsidy. After all, what entity actually controls most of these loans?

 

This is not my opinion or statements but those of an attorney friend who has 5 national banks as clients, spoken to me over drinks well into the night (yes, he was somewhat inebriated):

"Some people have been living in a home that they've failed to make a single mortgage payment on for nearly two years."

"Banks do not want to take back any homes where the house is worth less than the mortgage, and this is especially true where the person living in the home has been taking good care of it and paying the utility, and maybe, tax bills. If the bank took it back, they'd have to ramp up costs of maintenance, they'd get hit with non-homestead taxes and other huge carrying costs."

"If banks did foreclose on all homes they could at present, it would only add to inventory levels, put downward pressure on comps, and dramatically increase their carrying/maintenance costs. It would be financially irrational for them to do this."

"The TARP and other government funds are the only thing that have kept banks from having to give away homes in many cases. The taxpayer is essentially taking the loan loss the bank would otherwise have to absorb from mortgage defaults."

"As many as 40% of foreclosed homes suffer from issues that either make the home uninhabitable or nearly so, such as mold or other environmental issues, water leaks, etc., and this is a direct result of the incompetency of banks in not reviewing, let alone maintaining, the millions of foreclosed homes now on their books."

"The real crisis in real estate is set to occur in 2010-2011, as masses of people finally move out of homes they either haven't been making mortgage payments on, or decide to quit making mortgage payments on, as the number of people who more on their mortgage than what the house is worth grows by a phenomenal rate."

"Never, ever, ever listed to real estate brokers or agents when it comes to bank owned real estate. 99% of them are the most incompetent sources of information you could possibly find. The few who aren't incompetent are unavailable to the general public, and you'll never hear from them publicly or privately."

 

To add to that, anecdotally:
I remember reading, last winter, I think in a post by you, BLSH, that banks couldn't pay for the snow to be shoveled off the sidewalks and driveways of many foreclosed homes in the snow-belt, and were getting fined by municipalities.
The banks also couldn't pay the fines.
This is getting interesting.

 

“What if the people won’t leave?”

Well here’s the deal Bidask, the bank can get the sheriff to evict them and law enforcement is getting plenty tired of doing this, sometimes refusing. More commonly, they use a process called cash for keys.

Let’s say I have a listing from an asset manager on an REO property; when I go to inspect the home the bank will typically authorize a predetermined amount to pay for “moving expenses” in an effort to assist the occupants to get out. A polite euphemism for bribe. If the pre-authorized amount is insufficient, then they make a counter offer to the bank, with the sheriff acting as a sword of Damocles over the occupant’s heads.

Far worse, the former “owner” does leave, but on the way out they trash the house. Appliances, fixtures, landscaping, drywall and even copper wiring are all “fair game”.

Understand, these people are typically really pissed at the bank because they have been trying desperately to modify terms with the bank during this whole process.

 

i know several who have and are living in million dollar plus homes and haven't made a payment in 2 years.

the question is, when will the dislocation finally occur? will property be reset to a very low valuation by governmental action OR what will finally happen?

betting on dislocation confusion setting in very soon--- who knows.

surf

 

A friend of mine in Denver, Co. has been living rent free for 15 months now.

He has a 1st and 2nd mortgage on his home. The property he paid for was 190k, its now worth under 75k. His 1st mortgage sends his quarterly statements and hes behind like 30k plus in mortgage payments. His 2nd calls him from time to time but they have a worthless piece of IOU from him because if they foreclosed, the 1st gets the money and would take all of it and the 2nd is holding its hand on its ass.

Hes in a win win situation because if they do eventually foreclose he still has at least 6-12 months before he would have to get out!

Fucker lives rent free! One other thing, he has 3 roomates and charges them 250 each, thats 750 in his pocket + no mortgage paying! Just incredible!!! This shit never happens to me!