Via Marie Rohde and Ben Poston at the Milwaukee Journal Sentinel, a look at just how much foreclosure activity has impacted the local real estate market: After a record year for foreclosures, a stunning 1,000 Milwaukee County properties already have been scheduled for sheriff’s sales in the first nine weeks of 2008, with a record 200 put up for sale in just one day earlier this month, records show.
With home mortgage foreclosures becoming a drag on the national economy, local officials now say they are worried that the high tide of foreclosure sales – more than 2,800 properties were scheduled for sheriff’s sales in 2007, a 60% increase over the previous year – could easily become a tsunami in 2008.
As far as U.S. states go, RealtyTrac reports that Wisconsin is just barely in the top half of the nation for total foreclosure volume — so what’s playing out here in Milwaukee is undoutedly taking place in many other cities across the US. This isn’t a coastal city in California or Florida.
The Journal-Sentinel offers up some other tidbits of knowledge about the local market, including the fact that 92 percent of foreclosure sales are “going REO,” creating a glut of foreclosed inventory:
Tammy Tekaver, a broker with Metro Realty Group who handles foreclosed properties, said such properties usually had sold within 90 days. Now, it’s not unusual for a property to be on the market for 180 days, even though the price might be as much as 25% below the fair market value.
“The market is saturated with foreclosures right now,” Tekaver said.
Which, of course, means that there are city codes and compliance issues that must be dealt with; HW readers may have seen some recent coverage on the front page of BusinessWeek that tackled the problem of code violations during foreclosure (see “Dirty Deeds,” January 3). Milwaukee is facing similar problems, the Journal-Sentinel reports, where lenders can’t sell a property in major disrepair and are faced with the unsavory choice of writing off their entire investment:
If a bank can’t sell a property, abandoning it might be the only option, and the municipality in which the property is located must wait three years before it can foreclose for unpaid taxes; the property likely would be vacant during the delay.
James Mulligan, a lawyer for lenders in foreclosure actions, said his clients want to unload foreclosed property as quickly as possible. In some cases, they’ve been willing to do that for the cost of the back taxes, city building code fines and the cost of the foreclosure action. But the banks are not willing to bring additional money to the table, he said.
Mulligan said the city’s refusal to negotiate building code violation fees, coupled with the banks’ refusal to bring additional money to the table, quashed at least one sale.
“We were $1,500 apart on a sale,” Mulligan said. “If the city had forgiven $1,500 in code violations, they would have collected the taxes, and one home would be occupied rather than boarded up.”
BusinessWeek’s coverage villianized lenders for walking away from properties; partly justified, partly not. The above underscores that the complex problem facing local municipalities isn’t just the need to take lenders to task for property preservation, or the need servicers have to be more flexible throughout the process — it’s also the need cities have to work with lenders cohesively to solve a problem that is denting everyone’s pocketbook.
I can’t think it was in Milwaukee’s best interest to obstinately pursue a pound of flesh for a code violation, only to see a property remain vacant.
Likewise, I can’t think it was in an investor’s best interest to let $1,500 stand in the way of a potential sale; this is a process that’s broken on both sides.
I know directly of some localities in Michigan and Ohio that have forged a unique partnership with a few national property preservation companies, to great effect for both their local communities and the lenders that have a presence there.
Sure beats suing everyone, don’t you think?