Tag Archives: foreclosures

A unique way to acquire a McMansion: “adverse posession”

Posted on by

Amidst many foreclosures across the country, one Texas man believes he has found a way to acquire a suburban McMansion for $16. The move involves invoking “adverse possession” to take possession of the $300,000 home:

“This is not a normal process, but it is not a process that is not known,” he said. “It’s just not known to everybody.”

He says an online form he printed out and filed at the Denton County courthouse for $16 gave him rights to the house. The paper says the house was abandoned and he’s claiming ownership…

But, Robinson said just by setting up camp in the living room, Texas law gives him exclusive negotiating rights with the original owner. If the owner wants him out, he would have to pay off his massive mortgage debt and the bank would have to file a complicated lawsuit.

Robinson believes because of the cost, neither is likely. The law says if he stays in the house, after three years he can ask the court for the title.

It will be interesting to see how this plays out as it would require someone, the true owner, the bank holding the mortgage, or the government, to move this guy out. It is funny that the neighbors seem to be the ones leading the charge against this guy: are they simply jealous that he was able to acquire a home for this little money?

But perhaps this story hints at a positive side effect of the foreclosure crisis: states and other governmental bodies get a chance to review all sorts of laws regarding mortgages, foreclosures, and housing possession.

Revisiting “Privatopia”

Posted on by

One of the key texts in the last 20 or so years regarding gated communities and homeowners associations was Privatopia, published in 1994. With a recent book, Beyond Privatopia: Rethinking Residential Private Government, the same author updates his thoughts and talks about the financial viability of homeowner’s associations:

A: The (housing) boom is clearly over, and right now few of these associations are being created. The problem shifts to sustaining the ones we have. What was sustaining them was an endless rise in housing prices. People could always sell at a profit, and the association would get its money. Now we have foreclosures and people not paying their assessments for six months or a year, and associations aren’t getting their assessments. The banks in foreclosures don’t want to pay overdue assessments…

It’s presumed that monthly assessments will cover operating expenses, which can include things like trash collection, pool maintenance, even resurfacing the streets. But studies that have been done show they probably don’t have enough money in reserve. At least a third of them … don’t have half of what they should have. After the housing collapse and the foreclosures, it’s probably more like half don’t have enough. Many of them are having to go to the bank and get a loan, but if you have a high delinquency rate, you can’t get a loan…

Q: Do you have any numbers on how many such associations are in dire financial straits?

A: No, and that’s a problem. I’m starting a six-month sabbatical now to work on exactly that. Everything I get is anecdotal, and I want to get a quantitative handle on how bad the problem is.

If many local governments are having budget problems, it is a surprise that many homeowners associations are facing similar troubles? I would imagine that the locations with more associations in financial trouble would mirror locations with more foreclosures and the most depressed housing prices. I wonder how many people within these associations are aware of these troubles. Actually, I wonder how many residents pay much attention at all to what their associations are doing.

Ultimately, perhaps this will all end up in the courts as associations and lenders who own foreclosures battle over assessments.

The Chicago Tribune makes a case for land banks

Posted on by

A number of Rust Belt American cities have lost population in recent decades, including Chicago in the 2000s. A number of strategies have been proposed for what municipalities should do with the buildings and land that is no longer occupied. The Chicago Tribune makes a case for one solution: land banks.

By putting unwanted properties under centralized, local control, land banks fight urban blight. Instead of becoming an eyesore, safety hazard or worse, an abandoned home can be turned into a side lot for another home, or combined with other properties for green space or eventual development.

Municipalities have powers to clean up or knock down unmaintained properties — Chicago is among the best at it. But land banks can make the process more open, efficient and cost-effective…

Done right, land banks can enable cities to clear away unwanted structures and debris, giving the sites around them new life. Over time, parcels can be pieced together for optimal use. In St. Louis, Indianapolis and elsewhere, land banks have shown promise in dealing with properties nobody wants — a number certain to soar with so many homeowners behind on their mortgages.

When people leave and don’t come back, cities need to reorganize. Recent census figures show Detroit and Cleveland at 100-year population lows and falling. They can’t afford to stand pat and hope that somebody — anybody? — moves back in. Chicago lost 200,000 people in the last decade. In Flint, eventually, entire blocks will be cleared, enabling the city to consolidate services, save money and boost efficiency.

The article suggests that realtors are opposed to this in Illinois and this is holding back the legislative process. I wonder who is for or against this idea among the broader spectrum of political, business, and community leaders. I imagine there might be some others who might wonder at the ability of the city to manage all of this land. In this era of budget deficits, would this be expensive in Chicago in the short term? Additionally, the Tribune uses the term “urban blight,” a concept that might remind people of programs after World War II that allowed cities to wipe out affordable and/or ethnic neighborhoods.

The editorial cites a land bank in one other city: Flint, Michigan. Is Chicago in such trouble that it needs to use the same strategies as other Rust Belt cities that tend to draw more attention for population loss and vacant/abandoned/foreclosed properties? The editorial suggests foreclosures are a big problem in Chicago but I haven’t seen data that suggests the city has been hit that hard by foreclosures compared to a number of other places.

With banks and lending institutions owning so many homes, housing values will be lower for several years

Posted on by

Foreclosures are not just an immediate problem; the New York Times reports that the number of foreclosed homes now owned by banks and mortgage lenders are likely to depress the housing values for years to come:

All told, [banks and mortgage lenders] own more than 872,000 homes as a result of the groundswell in foreclosures, almost twice as many as when the financial crisis began in 2007, according to RealtyTrac, a real estate data provider. In addition, they are in the process of foreclosing on an additional one million homes and are poised to take possession of several million more in the years ahead.

Five years after the housing market started teetering, economists now worry that the rise in lender-owned homes could create another vicious circle, in which the growing inventory of distressed property further depresses home values and leads to even more distressed sales. With the spring home-selling season under way, real estate prices have been declining across the country in recent months…

Over all, economists project that it would take about three years for lenders to sell their backlog of foreclosed homes. As a result, home values nationally could fall 5 percent by the end of 2011, according to Moody’s, and rise only modestly over the following year. Regions that were hardest hit by the housing collapse and recession could take even longer to recover — dealing yet another blow to a still-struggling economy.

Not good news for those who want to sell a home in the near future. It is interesting that we now hear very little about this at a policy level. There are certainly other important pressing issues in the world (jobs, gas prices, military actions, Republican candidates for President?) but housing values affect a lot of people.

At the same time, I have heard and seen new advertisements from the National Association of Realtors. I wonder why they are running these ads now: are they worried that more people will rent rather than buy? Is there an uptick in the number of people who are trying to combat lower housing values by selling the home on their own? Do they feel that there might soon be changes in public policies, perhaps through measures like limiting or getting rid of the mortgage-interest deduction, that would limit the government’s promotion of homeownership? And interestingly, these advertisements have stressed that homeownership helps create jobs.

Boost home values by leaving out distressed sales

Posted on by

The Chicago Tribune looks at one way home values might stabilize: simply don’t include distressed home sales in the calculations and in appraisals.

A report from data provider CoreLogic showed that Chicago-area single-family home prices were relatively flat in February, down only 0.37 percent from a year ago. But that figure includes only traditional sales and not the impact of distressed-sales prices. Add in the sales of foreclosed, bank-owned homes and short sales, and Chicago-area home prices fell 10.4 percent in February on a year-over-year basis…

There’s one problem with Ford’s proposal, though. Appraisers are licensed by the state of Illinois but follow uniform federal guidelines that dictate that they analyze available comparable sales.

“It would lead to a misleading report,” said Chip Wagner of A.L. Wagner Appraisal Group Inc. in Naperville. “You can’t overlook any of the factors in the marketplace that are influencing factors. It sounds like a good idea in fairness to homeowners, but the appraisers that follow that would be in (danger) of losing their licenses.”

While this is being considered in a number of locations, it does seem that legislators would need to decide whether the benefits for homeowners outweigh the limitations.

Additionally, this sort of story might be good ammunition for those who are cynical about statistics: can’t you just change around a definition and say something very different (in this case, Chicago home sales have declined versus they have barely declined)? But at the same time, most statistics are dependent on their operationalization: whether home sale values should include the sales of distressed homes is more of a definitional issue and decisions about this would likely come down to vested interests and motivations.

Habitat for Humanity limits foreclosures for lower-income homeowners

Posted on by

Some recent data about Habitat for Humanity suggests that it may still be possible to have lower-income homebuyers without higher risks of default or foreclosure:

A recent study led by the Cox School of Business at Southern Methodist University, which was commissioned by the Dallas branch of Habitat, found that foreclosures in Habitat’s Dallas market were less than 2% last year. Although the report only looked at the Dallas office of Habitat, the findings mirror those found in other Habitat offices across the country, the organization says.

If this data holds up across the country, we should then ask why Habitat owners have such low foreclosure rates. Is it just because Habitat for Humanity has a limited operation each year (a small sample to work with) or is there something about their program that makes a difference?

The article suggests that Habitat’s particular program is what makes the difference: the homebuyers go through “home-ownership education,” there is consistent interaction with Habitat after the home purchase, the purchased homes are relatively modest (not “McMansions”), and Habitat imposing a less punitive late fee for late mortgage payments. One of the study’s authors sums up the impact of what Habitat does:

“These are practices that I think any bank should implement, particularly after looking at the foreclosures in the last five years,” said Paul Hendershot, lead author of the Dallas Habitat report and an adjunct University of North Texas professor.

It would probably cost quite a bit for lending institutions to adopt the practices of Habitat for Humanity for each mortgage holder. While the up-front costs are prohibitive, the lenders would save down the road as homeowners would go through fewer foreclosures.

Are Section 8 vouchers now being used for McMansions?

Posted on by

WalletPop has a story with a provocative opening line: “In what may be one of the strangest twists to the housing market crisis, Section 8 housing tenants are moving from urban housing projects and into high-end condo complexes and single-family McMansions that just a few years ago sold for hundreds of thousands of dollars.” The premise makes some sense: in an unstable housing market with a lot of potential for vacancies and foreclosures, landlords are looking for steady money. While Section 8 users were “treated by landlords as the tenants of last resort” in better times, now landlords are looking for this consistent money from the government.

But as I read this article, I tried to figure out where the McMansions come into play: most of the examples here feature Section 8 users moving into nicer condos or apartments, not large homes out in the suburbs. So are Section 8 vouchers really be used for McMansions, which at the most basic level are large, single-family homes? Does a Section 8 voucher provide enough funding to allow people to live in McMansions, even ones with reduced prices? There is not much information here to back up this assertion although it does sound as though the housing crisis has allowed Section 8 users to access a broader market.

Also, the headline of the article, “Section 8 Tenants: the Housing Market’s Salvation?,” doesn’t really address if there are enough Section 8 vouchers to help the broader housing market. For this to happen, the federal government would need to free up more money for more people in this housing assistance program.

Florida leads country with 18% home vacancy rate

Posted on by

While foreclosures and vacancies are a problem throughout much of the United States, some states have been hit harder than others. New data from the Census Bureau shows Florida has the highest home vacancy rate in the country:

On Thursday, the Census Bureau revealed that 18% — or 1.6 million — of the Sunshine State’s homes are sitting vacant. That’s a rise of more than 63% over the past 10 years…

The vacancy problem is more dire in Florida than in any other bubble market: In California, only 8% of units were vacant, while Nevada, the state with the nation’s highest foreclosure rate, had about 14% sitting empty. Arizona had a vacancy rate of about 16%.

In Florida, the worst-hit county is Collier — home of Naples — with a whopping 32% of homes empty. In Sarasota County, 23% of the housing stock sits vacant, while Lee County (Cape Coral) has a 30% vacancy rate. And Miami-Dade County has a vacancy rate of about 12%.

The article goes on to say that the problem of vacancies has grown partly due to a slow-down in population growth in the state in the late 2000s. Additionally, the large number of vacancies has helped lower housing values: “The median price for homes sold in January was just $122,000, according to the Florida Association of Realtors. That was down 7% from 12 months earlier and less than half the price at the peak of the market.”

It would be interesting to see new or recent studies that look at how these vacancies impact community and neighborhood life. Beyond the economic impact, how does having a large percentage of empty houses effect interactions that people have with each other?

Also, how exactly are vacancy and foreclosure statistics related? Nevada has the highest level of foreclosures but a lower rate of vacancies – is this because more people have actually gone through the foreclosure process?

(If you want some insights into how the Census Bureau calculates different vacancy rates, see here. This would have been helpful information for an earlier discussion about seemingly different vacancy statistics.)

Subdividing the McMansion into multiple housing units

Posted on by

With many houses around the country in foreclosure, an idea regarding McMansions has popped up in a few places: why not subdivide these large suburban homes into multiple units? A writer for the Sarasota Herald-Tribune brings up this suggestion when reviewing a book about granny-flats:

The only serious omission is any example that would show how the enormous, 4,000-square-foot, 5- or 6-bedroom McMansions that dot the country could be creatively subdivided into separate living units. This strikes me as an obvious move because it would create affordable housing for renters while it would help financially pressed owners to stay in their houses. And the square footage that would be allocated to a granny flat would not be missed — most owners of these big houses have a lot of space they never use.

Litchfield concurred that such conversions seem obvious, but in most cases, he said, suburban residential zoning codes prohibit it.

Several things are interesting in this short section:

1. The McMansion is roughly 4,000 square feet and larger according to this writer.

2. Subdividing the McMansion would benefit multiple parties: the homeowner who could rent out a few units and people who need affordable housing, a particular need in higher-end suburbs where a lot of the available jobs are service or low-paying jobs but there is little nearby housing for such workers.

3. People have so much space in these 4,000+ square foot homes that they won’t really miss the extra space. I wonder if anyone has ever studied this in large homes: how much of the space is regularly used or even filled with furniture or storage? Is this really unused space or is this just the perception?

4. Zoning codes generally are against this idea as single-family home districts typically restrict the creation of multiple units out of single units. Once renters are in a neighborhood, people often have the impression that the neighborhood has changed: renters don’t care as much about keeping up the property, renters are different types of people than homeowners (sometimes hinting at class or race concerns), etc. But if converting larger homes into multiple units helps stave off foreclosures, should communities allow renting rather than contributing to empty houses in empty neighborhoods (which brings on its own set of issues)?

Update on “baseball McMansions” in Arizona: White Sox also facing issues

Posted on by

Yesterday, I wrote about a new spring training facility in Arizona that one writer dubbed a “baseball McMansion.” While this particular park may have issues, it is not the only one. The Chicago White Sox also recently moved to the same area. Because of the economic recession, the White Sox are having attendance issues and the mixed-use development that was supposed to surround their facility has not been built:

Small crowds on the west side of the Valley are an alarming trend as the White Sox and other neighboring teams try to rebound in the wake of a depressed area.

“The opening of the Rockies-Diamondbacks stadium (Talking Stick at Salt River Fields) is definitely pulling people away,” Sox chairman Jerry Reinsdorf said before 10,074 fans attended Wednesday’s game between the Sox and world champion Giants. “Now you have six teams in the east valley…”

But the Glendale area hasn’t developed into what the Sox thought when they decided to move from Tucson after the 2008 season.”One of the attractions to putting this ballpark here was the plan for what was going to be built around it,” Reinsdorf said. “By now, in our third year, we were supposed to be looking at restaurants and retail and a hotel and condominiums. And the guys who were going to do that went broke. So we’re sort of sitting out here by ourselves.

“All of the projections for the Phoenix area growth had Glendale in 10 years being the population center of the valley, a ton of people west of here. And that stopped. But at some point the economy will come back. This is too vibrant an area. And when it does come back, those projections will come true. So it’s just a delay.”

It may be some time before the White Sox and other teams see an uptick in attendance and building as Arizona has been hit hard by the economic recession, evidenced by foreclosures and a slowdown in development. Reinsdorf sounds quite optimistic about the future – perhaps he has to be if he has put a decent amount of money into this project.

it seems like now would be the time to look into why exactly the White Sox and other teams moved to this area. In their projections about Glendale, was their any allowance for a growth slowdown? Was the main draw the growing population in this area or were there certain financial incentives that made this move attractive? And what will happen to these spring training complexes if population growth in this area is limited for a significant amount of time?