Flood Of Bad Debt

by Darrin DeRoches December 22 - 28, 2011

They are tearing down houses at an alarming rate throughout the United States. Thousands of perfectly good homes are being torn down, one after another.  Is it due to drugs, crimes, bed bugs? Is it to clean up a natural disaster? Asbestos, insurance claims, health reasons? Why are thousands and thousands of perfectly good homes being demolished? They are being demolished due to the term “mortgage is underwater.” Oh, so a flood then, right? Kind of, a flood of bad debt – no water required.     Many cities throughout the states are demolishing homes in their communities to save the city or town from a bigger “flood” of bad debt. Ever since the crash of the real estate market in the states, banks have not only allowed homes to sit and rot – they are not even trying to sell homes in most cases. The banks that caused the problem in the past are now causing the average value of properties to decrease due to the alarming rate of empty homes. A city like Cleveland is demolishing two homes a day at a cost of about $10,000 dollars a home. The bank has decided not to even take ownership once the mortgage holder walks away since they owe more than the home is worth which is referred to as “underwater mortgage.” Some people are working hard on still paying a mortgage that is underwater but the majority have decided to walk away and start over. These homes are then left for the bank who does not want to take possession of them since the cost involved in maintaining them and eventually demolishing them will add to the “loss” they have already incurred.     The bank created these ‘bad mortgages’ and are now leaving the costs and rotting properties to the communities they have gutted in the first place.  One street may have a dozen homes with half of them empty. These empty homes create a depreciated value on the whole street, so the people who actually pay their mortgage are losing equity in their homes. The city of Cleveland has decided to take on the cost of demolition and to ‘save’ the rest of the communities. In most cases they give the land to the neighbour who is paying their mortgage and they will maintain the property in the hopes their street will not become deserted and will regain the value it once had. They are trying to save their community while the banks just sit and hold on to the money they have already made. The ridiculous side of this is that if the banks would just “adjust” the mortgages they hold then they would make more money in the long run. Communities throughout the United States are being devastated by the largest disaster they have ever seen – corporate bank greed.V Darrin DeRoches is a local real estate and mortgage broker. He can be reached to answer questions, comments or stories about real estate experiences through this weekly column at mail@uniquerealty.ca.