Buyers Trashing Houses After Foreclosure
A “significant” number of people are willfully destroying their homes before complying with eviction notices as a means of exacting “revenge” on banks for foreclosing on them. This, in turn, has created a black market cottage industry where bankers bribe people with cash payments for leaving peaceably.
Megan McArdle doesn’t understand the pointless destruction, observing that it’s “hardly the bank’s fault that you can’t make your mortgage payment.” Indeed.
What I wonder, though, is why these people aren’t thrown in jail? Once they’ve failed to make their mortgage payments, the house isn’t theirs but the bank’s.
Well, wanton destruction is certainly bad, even though it may amount to some kind of poetic justice.
However, your statement that “Once they’ve failed to make their mortgage payments, the house isn’t theirs but the bank’s.” is just plain wrong.
The bank does not own the house. The bank has a right to go to a court of law and sell the house using the funds to pay off the mortgage, but any excess funds would actually go to the home owner.
There might be other legal actions the bank could take to safeguard the collateral, but the bank does not own your home just because you fail to make your house payments.
In the current mess, how many of these houses can be sold and still have excess funds? When you sign the mortgage, who holds the deed of trust?
This happened in the home next door to us. After the home was foreclosed, our neighbor stripped it clean — cabinet doors, faceplates for receptacles and light switches, etc. He stole the shed, a huge shed, from the backyard. He may even have taken the kitchen sink!
I suppose he could rationalize by saying he owned those things because he bought them when he remodeled the house. But that seems like a stretch, and it wouldn’t apply to the shed.
We still can’t believe he’s not in jail. His actions have cost the bank no small amount of money in the lower value they will get for a home stripped clean not just of furniture but of things that are assumed to be part of a house.
Continuum is right in that until the court rules and legal process is served, the house does not belong to the bank. They have legal rights through the mortgage that may get them to own the property, but by that measure I may have legal rights in terms of a lawsuit for you impregnating my oak tree which would in turn let me gain some of your possessions. Wouldn’t you want to wait until the court rules that you did illegal impregnate my oak tree before losing your property rights?
One of the problems of legal action is the question of reasonable wear and tear vs vandalism (probably the most appropriate charge). I have had to remove my sink for repairs. Who is to say that a removed sink was deliberately torn out vs in the process of repairing the cabinet space when work ceased due to the foreclosure. Likewise the stain/tear in the carpet, the hole in the wall, the missing electrical socket, etc.
Then you have the question of criminal vs civil suit. While a few well publicized criminal cases might deter others, they will add very little money into the bank coffers. Even a successful civil suit (showing that the damage was deliberate, done by the former home owner and done after the legal title was transfered), is not likely to provide much money (if they had money they would have paid the mortgage).
This is one of those examples of poor citizenship which should be condemned, but there is little legally that could be done about it.
As an aside, I have a friend who missed a mortgage payment (starting up a business and just didn’t have the money to make the payment that month). The bank was pretty generous with him and as part of him calling to work things out offered to ‘skip’ the month and add it on to the end of the mortgage. As part of that, he is supposed to not make payments until the paperwork is completed. Obviously, this is a bank trying to work through a short term problem that will keep the mortgage productive for the bank with minimal costs all around. His business had picked up and he now has all but the original missing months payments in a saving account (at the bank with the mortgage) while he waits for the paperwork to complete to extend the mortgage.
That to me is how the system is supposed to work. Purchase a house within you means, when things change have the homeowner contact the bank when the missed payment is due to explain the problem and attempt a work around, have the bank recognize that foreclosure is not the best solution for anyone involved and push the payment back and have the homeowner act responsibly on not spending the money for “missed” payments. Saving the money in question in the savings account at the bank I thought was a nice touch to make the bank not feel panicky.
I agree with yetanotherjohn. It seems like smart business sense to find ways to work out not-too-major financial situations. Of course that mercy can be abused. I would expect such bank behavior from a firm more deeply rooted in the local community. Which can be a lesson to future borrowers: going local may cost you a little more, but you might get more help if needed.
Many of the homes in foreclosure were not financed by banks, but by mortgage companies, some of which were perpetrating fraud and deceptive lending practices. While trashing your home on the way out is not the right way to deal with this, victimized borrowers have few options for help while some financial institutions that made a lot of money selling bad loans and ignoring their fiduciary responsibilities are getting multi-million dollar bailouts from the public coffers.
It’s hard for me to feel bad for institutions that screwed people through irresponsible and/or illegal acts when they have to spend some money repairing the damage. A trashed home can be fixed far more quickly and easily than trashed credit.
I don’t think the point was to feel sorry for the banks. To me it simply highlights that these people never learn. It was irrational, self-centered thinking that got them in their mess in the first place, and it continues on the way out the door.
What kind of illegal act could get you to sign for something you knew full well you could not pay for in your lifetime? If you make $4k a month and you buy a house who’s mortgage payment is or will be $5k a month what lie is it that would cause you to sign on the dotted line? I own this bridge in New York city that I want to sell. You can charge a toll. For a small down payment, say $10k I will send you the deed. I will wait to hear from the takers.
“Continuum” & “Yetanotherjohn”,
I see the ownership of these properties differently. Until you have your mortgage paid off, banks, mortgage, finance companies have valid claim to your property. In fact, watching some real estate auctions in the Atlanta, GA area, I was stunned to hear that down there, if you miss one mortgage payment, they can seize your property, throw you out, and the bank/lien holding party can auction off your “stead” to the highest bidder.
Until you make that last mortgage payment, you might believe that you are the “owner”, but truthfully you are a leasee. A tennant who is paying off a secured loan in order to have a a slice of the American Dream.
I will agree with those who pointed out above that until the legal process runs its course, the borrower is still the owner of the property. On the other hand, most mortgage documents have a covenant whereby the borrower promises not to commit “waste” by taking actions to reduce the value of the property, which trashing the place certainly qualifies as. On the third hand, since the borrower is already violating his promises by not making the mortgage payments, adding another broken promise under the loan documents doesn’t typically scare the borrower. On the fourth hand, since the mortgage documents typically allow the lender to go after the borrower for the difference between the mortgage balance and the value of the house, trashing the house likely adds to the deficiency owed by the borrower after the foreclosure. And on the fifth hand (now you see why Harry Truman asked for a one-handed economist), the borrower typically is in no position to pay the deficiency anyway, so again this is unlikely to deter the borrower.
I have bought several homes after foreclosure, all from banks, and each in need of a great deal of work. Although there was some apparent vandalism in each house, most of the damage has been from lack of maintenance.
I have jumped to the conclusion that people who can’t afford their payments certainly can’t afford maintenance, and usually don’t have the ambition or talent to do it themselves.
I have not yet seen a house in excellent condition on the date of foreclosure.
Also, I have sold TWO houses to buyers who used FHA.
Neither made the payment and each was evicted after 24 months.
Equity should be earned through savings or sweat, before a mortgage is provided.
That fits well with John McCain’s call for more reliance on down payments. The trade-off being fewer people will be able to own homes.
In a previous job when I worked at a law firm doing evictions (and from family in the apartment management business) there were many cases where evicted tenants would do the exact same thing to the units. (One time someone stole the door off the oven)
In a world where people have been conditioned to hate “rich” institutions by the leftist press and academia why are you surprised that people do this?
There is also that victim culture that is certain the bank seduced them into taking the loan.
Thirdly this is compounded by the president politicing the “ownership society” so why can’t they just keep it?
Many are also bitter that their tax money has been spent on bailing out others (Katrina etc.)
In a nation where “Character doesn’t matter” in the presidency, and some Churches are peaching hatred……
Then again there is that “immigration” thing. I realy don’t live in this country I’m just working here.
I simply must add that they also saw what the CLintons did to the White house when they were evicted, and merely thought that it was now acceptable to trash it when you’re leaving.
This is actually nothing new.
When we were looking for our first home in 1994, we looked at several forclosed properties (because you could often get a larger house for the money). We nixed all of them, because all of them had missing appliances, and a lot of other things that normally come with a house, and there was often a lot of damage and they weren’t actually in the long run affordable enough.
I do think a lot of the damage comes from lack of maintenence, rather than deliberate intent. The appliances are sold, because it puts cash in the owner’s hands.
I figure banks/mortgage companies could file civil suits, but if the former owner couldn’t make their house payments, will they have money to pay for a judgement? Doubtful, in tghe long run it is probably cheaper to just suck up the loss, and hope to get as much as you can from the sale of the home.
Are those who are vandalizing foreclosed properties exclusively the victims of fraud? Is there a statistical difference in vandalization rates between those who are the victims of fraud and those who aren’t? Absent those, this is just a red herring.
I simply must add that they also saw what the CLintons did to the White house when they were evicted…
I am an Obama supporter and would not vote for Clinton under any circumstances, but that is pure nonsense. That story has been established to be pure fiction for many years now.
Correction, yes some fewer will own homes but the more realistic picture is fewer will own McMansions. They’ll buy more modest abodes within their means to pay for. For those unable to save up a reasonable down payment, perhaps it’s best if they don’t own.
Quote: “Megan McArdle doesn’t understand the pointless destruction, observing that it’s “hardly the bank’s fault that you can’t make your mortgage payment.†Indeed.
You have to ask yourself why are these people willing to resort to these lengths? Wouldn’t you be interested to hear the conversations between these people who are being foreclosed upon and the banks’ “customer service” departments? You may be more than a little surprised to hear what homeowners under duress of losing their mortgages have to endure from the banks…it’s not pretty. Maybe there’s a message being sent by these “vandals” that you’re not hearing.
That all depends on who is the fee simple owner of the record title. You cannot be criminally charged with destroying your own property. Contrary to popular belief, a mortgage or deed of trust (as it is called in some places) does not transfer legal ownership in a property. All it does is grant a secured and enforceable lien on the real property to the lender. While variable from state to state and sometimes the region, the bank is not the owner of a foreclosed property until either a judgment has been issued and/or, in most cases, a referee’s deed had been delivered or recorded with the proper clerk.
“I simply must add that they also saw what the CLintons did to the White house when they were evicted, and merely thought that it was now acceptable to trash it when you’re leaving.”
Posted by DL
(a) That was a media lie.
(b) The Clintons were not evicted; they’d have had to leave then, anyway. Wishful thinking, perhaps?
Barry;
Evict: [1]”eject a tenant from a property by legal means”[2]”throw somebody out of a place”
OH!! They were EVICTED alright![lol]
BTW;They trashed the White House by their presence.
Now they want it back! I guess they heard a rumor of an unsullied corner![grinz]