Banks refuse to take title on repossessed crappy houses

US banks are foreclosing on crappy, formerly overpriced sub-prime housing and then not taking title to it, in order to avoid the taxes. This could create suburban abandoned zones of boarded-up houses,where the local tax-base is depleted, undermining schools and services.
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.

Link (Thanks, Jason!)


  1. So, how does that work?

    Let’s say Bob defaults on his mortgage, and the bank forecloses, but chooses not to take ownership of the home. Who owns it?

    If I come along and decide to buy the house/property, who do I buy it from? I doubt I could just move in and assume ownership.

  2. #1: Depending on where the property is, the laws differ. You’d want to ask a lawyer. I do know that (thanks to a BoingBoing story about it) there are some places in the US that have laws that state “If you use X real estate for Y time and Z owner fails to object, it becomes yours.” – the cost of fighting in court might be more than the house is worth, however.

    I’d love to see a lawyer provide an opinion on this kind of thing. Speculative squatting of abandoned sub-prime properties!

  3. The town/city will own it after about 2 years. I suspect your kids will pwn it before then though.

  4. Why even ‘evict’ people? Foreclose, don’t take title, and leave the people there, if no one ‘owns’ the property, the property would probably return to the corporation of the city, much like if you failed to pay the property taxes ( I am not a lawyer, anywhere ). The Sherrif would probably be obligated to remove them from the property until a buyer can be found to purchase it at an auction for pennies on the dollar… as its important to the city to have someone live on the land to generate income from taxes. Something is better than nothing.

  5. Very stupid by the banks. They could easily talk to the owners and get them agree to not make any mortgage payments for say 10 years while leaving the mortgage in place. No foreclosure costs, no dispossessed homeowners, and gee, less evil in the world. And the banks get to retain at least the hope of collecting on the debt one day.

  6. New Game Plan

    1) Take out sub prime mortgage on house
    2) Buy house
    3) Take out home equity loan on house
    4) Take out second mortgage
    5) Default on loans
    6) Bank takes property but no title
    7) Squat in own house
    8) Claim adverse possession
    9) Get title to house
    10) profit.

  7. Perhaps I am being pedantic, but the myriad of home financing issues that are being lumped under sub-prime is driving me nuts.

    “…crappy, formerly overpriced sub-prime housing…”

    The housing may or may not be a prime piece of property and therefore, you could call it sub-prime.

    But that is not the “sub-prime crisis,” which relates to the extremely generous terms, lack of down payment and waived income documentation requirements for borrowers with less than prime credit, i.e. sub-prime borrowers. Naturally, a higher than normal percentage of these have defaulted.

    The current real estate market, foreclosure rates and credit crunch issue is a more diverse and complex set of issues.

  8. Depending on your state, there are laws on “adverse possession” and related areas that explain how land which is legally owned but not in use may be seized by squatters.

    However, these timeframes are usually on the order of between 7 and 25 years, and always require that the actual owner not be aware of the use. Simultaneously, the illicit use of the land must be sufficiently obvious that if the legal owner were to be using the land, they would notice it.

    However, land acquired in this way also acquires attached debts, etc. (usually) which may or may not mean still being in debt to the banks (I’m not sure here…)

    This is NOT legal advice.

  9. Alternate plan:

    Approach townships or county governments and offer to occupy, repair, and maintain some of their abandoned properties. Demonstrate that you have the resources and desire to improve the area and live there. Better yet, found some kind of organization or cooperative that homesteaders can be a part of.

    Most small local governments are terrified of slipping into blight, and they’ll gladly turn over ownership of abandoned properties to anyone who will turn them into something positive for the community.

    Of course, if they’re not interested, you can always take over the abandoned housing anyway, and let your neighbors decide whether or not you should be allowed to clean up their neighborhood. Much of the time between the courts and the public pressure, you can be allowed to stay.

  10. This is happening at a frightening pace in East Cleveland right now, with over 1000 houses already demolished to avoid the fire hazard of leaving them leaning against one another and abandoned. This drain on the budget (it costs money to knock down houses) means that East Cleveland cannot afford to keep up with infrastructure, so roads and public utilities are suffering.

    It’s gut-wrenching to see this kind of thing happening, but it’s what should be expected when a major city goes from over 1 million residents in the 1950’s down to 450k or so now. Lots of houses with nobody to live in them.

  11. so after small towns have been sitting on their new, non-tax producing,expense gobbling empty instant slums for a few years- I guess they’ll be pretty grateful when someone, oh I don’t know, say, “a bank” comes along and buys the whole swathe of land for , oh,I don’t know,”nothing”?

  12. #8 posted by garys , April 3, 2008 10:10 AM

    Very stupid by the banks. They could easily talk to the owners and get them agree to not make any mortgage payments for say 10 years while leaving the mortgage in place. No foreclosure costs, no dispossessed homeowners, and gee, less evil in the world. And the banks get to retain at least the hope of collecting on the debt one day.

    And then the homeowner tells everybody they know how Countrywide Mortgage (or whomever) will pretty much just give them a 10 year free note on their house if they just don’t pay…

    Resulting in everyone not paying Countrywide.

    The foreclosure is strictly punitive, but then again there is no reason if you aren’t paying for the house you should get the house.

    Of course Barry mentions a that NY apparently has stretched its laws to require controlling parties to look after a house.

    Oh and as for the idea that the city/county can take these homes and turn them into low income housing, etc. Those dreams are rather far fetched. In most areas where this sort of abandonment is occurring homes are not overpriced, and the homes that are abandoned are the ones that have been stripped, or otherwise damaged.

  13. MATTHARVEST has it almost entirely right about adverse possession, but the owner CAN know about the use (and just not do anything), they just can’t have PERMITTED the use by the adverse possessor.

    And I have been wondering about suburban slums for years. Sooner or later, it will become economically inconvenient to live in an 8 bedroom McMansion 60 miles from your workplace. The reverse white flight will re-gentrify anything within biking/walking/good public trans. distance of the high paying jobs, and the now displaced lower economic classes will probably be forced into the collar areas and have to deal with inefficient public transportation.

    That’s my theory at least. You might have to wait twenty years, but if you snap up property that is relatively close to major urban areas and already established public trans, I don’t think you can lose.

  14. Unfortunately this is probably happening in every urbanized area in the country.

    One of the biggest problems is the actual value of the homes has been artificially high for many years now. “Crappy” poorly-built houses popped up in developments everywhere. Most of them start falling apart after a few years, immediately lowering their value, which combined with the declining economy leaves the banks holding notes on properties that aren’t worth anywhere near what the notes are worth.

    I had a new house in a development near Denver that after four years had a leaky roof, crumbing foundation, cracked and sinking patio and deck, along with creaky floors and windows that didn’t open right. Hard to sell something like that anything close to what it was originally purchased for. Fortunately I was able to unload it in a pre-forclosure arrangement.

    I agree with what someone else posted earlier- it would make more sense for the banks to allow people to continue to live in them. Either cut or eliminate the interest for a given time-period, and hope the market turns around in that period. It keeps people in the homes, reducing blight, which in the long run will benefit the neighborhood and their bottom line.

  15. it seems the problem is that there’s a legal limbo of the foreclosure process.

    instead of trying to game the system, why not actually fix it?

    make the banks liable at the moment of foreclosure. give them the incentive to be responsible and actually make the loans they should not have made work out.

    a lot of people did stupid things to get mortgages… but the mortgage companies and the banks constantly looked the other way and gamed the situation. instead of bailouts and propagating limbo loopholes, they should be made responsible… so should the ‘subprime’ borrowers.

    taking out a 750k mortgage and trying to default on it after 100k and ‘get a free house’ is morally reprehensible. these people aren’t gaming the banks- those costs are recouped by responsible people getting LOWER interest rates, straining the banking system so that responsible people can’t borrow as easily, and making taxpayers foot the bill.

    The revolutionary/consumerist view of ‘take back the system!’ sounds nice and pretty – but its really just a group of assholes who want the general public to foot their bills. Grow up.

  16. Dutch101 #18 — Upper economic classes living in/near downtown, forcing lower economic classes out to the fringes already appears to be reality where I live (Ann Arbor, MI, which doesn’t count as a “major urban area” though.) I thought this was already a widespread trend.

  17. Jonathan V,
    I think that most of the comments here were tongue-in-cheek. That being said, as the banks try to game the system, it seems as if all societal bets are off. If a squatter can turn an otherwise abandonded property into a tax-generating home, all the better.

  18. if I had a few million to play with, I guess I could buy my own town, move in my subjects and set up my own kingdom…. Subjects; there’s the sticky bit. Any other rich people out there want to set up a trading pool? I know some cities that will give us a good deal on some homeless. I’m sure we could work out some favourable tax terms with the local governments too. I bet if we use the religion dodge as well, we’ll be able to get some government money for the walls.

  19. Sounds like Batman will be plenty busy. Those villans are always setting up in some abandoned building..

  20. The article refers to “commencing” foreclosure proceedings. One can commence and abandon a foreclosure the same way that one can commence and then abandon a lawsuit (which is all a foreclosure action really is anyway).

    Keep in mind also that a “mortgage” has two parts: a promissory note and a lien. The lender can always sue on the promissory note (i.e., like any other unsecured creditor) and obtain a judgment without ever seeking to foreclose on the lien and obtaining the property.

  21. JGS,

    I also live near Ann Arbor. One of the factors in that situation may be the University of Michigan. In my experience in a college town, the rent is driven up by the number of students that try to occupy the town 9 months of the year, forcing lower income people to the fringes. For most students at large Universities, there simply isn’t parking available for the majority of students to commute in to school; they absolutely have to be within public transportation or walking distance. I think in that respect, maybe Universities are a bit ahead of the times in respect to the gentrification of urban areas.

  22. JGS and Scuba SM,
    Ann Arbor is plenty close enough to Detroit to be within the Detroit area. However, I do not see Detroit following the gentrification trend any time soon. Cities like Detroit and Newark may ultimately be outliers on these issues.

    In Chicago the gentrification appears to be at least party supported by government policy. Projects have been razed all over the city, but replacement housing has not been made available. Instead, the city talks about having similar net amounts of affordable housing in mixed-income areas over a broader (five or ten year) period. Obviously the displaced poor people can’t wait five or ten years for a replacement dwelling in the inner core, so they seek cheaper rents in the suburbs. Not yet in the exurbs, but still outside of the city limits.

    Of course, that is a different issue than the banks essentially destroying communities by refusing to either keep the properties up, or allow different uses for them.

  23. A couple that I know is getting a divorce and they’re both desperately trying NOT to get the house in the settlement. It’s worth three quarters of what they owe on it, they can’t unload it and neither one wants to get stuck with the foreclosure. I wonder if you could register a quitclaim deed giving your house to someone that you don’t like, thus sticking them with the foreclosure and credit nightmare.

  24. I’m with Scuba SM – Ann Arbor’s whole world revolves around the university, and a huge number of the students don’t have cars. Landowners can price gouge all the want because students want and need to live local. Meanwhile Ypsilanti is less than 10 miles away and is filled with “repossessed crappy houses.” My sig other tongue-in-cheek has referred to the interstate tnat encircles Ann Arbor as “the wall.”

    I think the reason Detroit hasn’t gentrified is because there’s no jobs there. They need a new industry first.

  25. Comments here are being quite rightly sympathetic to this particular situation BUT there is another issue of the banking system being hugely at fault, and in a very wide reaching manner, by loaning money to people who could not make their payments on any type of property?

    This issue of approving loans of significant amounts of money to what appeared to be ‘bad’ re-payment customers is what’s being discussed regularly in this part of the world.

  26. purely theoretically, a town composed of defaulted mortgage housing could be opened to the homeless of the nation. With minimal advertising, recruits could be found to occupy free dwellings. Of course, there would be only token employment for a few to entice the rest.After ensconcing a suitable pool of sufficient genetic size and variability, a more profitable secondary industry could be instituted. Naturally, Citizen-Clients could be encouraged to offer on the free market any redundant tissues and organs they might possess. After all,what parent doesn’t want to provide for their children? Fair remuneration based on world market averages would offered of course. That would only be just. Truly,such an enterprise would honor the highest ideals and traditions of the nation. Why, I even see another opportunity wherein the underemployed of the community might contribute to the economic polity as private physical therapy contractors. After a fixed period of engagement with persons of quality, they could be returned to the townships as “more worthy”.
    I think I’ll call it “Cheneyville”.

  27. They should put people first. Instead of having communities fail, donate the houses to Habitat for Humanity, to Katrina victims, low income families, homeless, or make them part of a new GI bill and give those houses to Vets.

  28. The BANKS are to blame for this! Or rather the brokers and the bankers are, since then are all in cahoots. Who’s going to fix the trouble, the people that caused it in the first place, or the idiots in Washington that deregulating the banking industry? I’m moving to Canada.

  29. so, i guess we can look forward to seeing american “instant cities” light-bulb-worker-towns and door-knob-worker towns in the future? no jobs and no place to live will force this to be the only choice.

  30. It’s unlikely that the motive for not taking title is taxes, unless it works differently there than here. The penalty for not paying property taxes is the government can take and sell the home – usually a few years later.
    However, if the local government is overzealous, they can make it uneconomical to own property, by rigidly enforcing housing building zoning and “health” codes. Happened to me when I tried to provide my neighborhood with some community gardens.
    Potential squatters: if the bank hasn’t taken title, see if you can buy up for $1 a quitclaim deed from the prior owner, and check the courthouse to see what the tax and lien situation is. Start a church if you need to avoid an overpriced property tax on the now-not-worth-very-much house.

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