…banks have begun to bulldoze foreclosed homes to help drive up property values in others.
Think about that for a second. My first reaction is, hey they own it, they can do with it what they want. But that isn’t exactly the proper reaction, is it?
The lender will pay as much as $7,500 for demolition or $3,500 in areas eligible to receive funds through the federal Neighborhood Stabilization Program.
That amounts to about a year’s worth of real estate taxes. So, they are knocking down the houses to avoid multiple years of property taxes then donating the land to the Municipality for a write-off.
In doing so they are often eligible for tax breaks, with write-offs allowing them to “deduct as much as the homes’ fair-market value,” from income statements.
Just exactly what is the “Fair Market Value” of a house you are going to bulldoze? Some would say if it is set for demolition it doesn’t have value. That’s not how these people think. The value is in the tax credits, write-offs, and property tax saved.
While those that see this through rose-colored glasses will say it raises the value of other real estate, they fail to see the raise in property taxes for those left standing. Property taxes are assessed by first divining the number that each government body needs to function then dividing that number among the different properties, thus, everyone else’s taxes go up. (How much do they charge for a demolition permit?)
June’s surprisingly positive home sales data may be the first token of evidence that the tactic is having a benevolent macroeconomic impact.
Benevolent? Who are they kidding? Only the Federal government can ‘stabilize’ a neighborhood with a bulldozer.
Wells Fargo, JPMorgan Chase, Fannie Mae and Citigroup are all considering similar strategies.
In another piece, there was this:
Christopher Thornberg, founding partner at Beacon Economics agrees: “No one needs these homes, no one is going to buy them,” he said. “
Think of the implication of that for a moment. Obviously, people need homes. No one will buy them because the taxes on them are so high and the value so low, it doesn’t make economic sense. Why would someone pay $5,000 for a home when the taxes every year are higher than that? It would be like re-buying the home, through property taxes, every year. So, in the end, it’s not that these homes have no value, it’s that the taxes can’t be supported by a under-valued home. Put another way, as the economy contracts the municipalities can’t find a way to contract with it.
Maybe it’s time these municipalities look to their codes* and ordinances to find out why it is so difficult to upgrade these properties. At a recent hearing, I was asked to respond to a charge of “Working without a permit”. When I produced a motion that questioned the Constitutionality of the charge, the “hearing officer” flat out stated he had no authority to rule on Constitutional issues.
*More on that later.