Bank-Owned Foreclosures — The Problem and the Solution

Published by julia | Filed under Buyer / Seller Tips, Miscellaneous, Real Estate, Shout Outs

With so many foreclosures taking place in the United States, a large portion of houses in the country are now bank-owned. However, many banks do nothing with these properties after the foreclosure has taken place. This means the houses sit on the market for months, even years, vacant and deteriorating. This, of course, causes property values to go down in the neighborhoods in which these houses sit. It hardly seems right when you think about it…..the former owner of the home is forced out, simply so the bank can keep their empty house and do nothing with it. Some former homeowners offer to rent their foreclosed home from the bank, but banks do not want to get into the property management busienss. This means neighborhoods full of empty houses.

Further, all bank-owned properties are sold in “as-is” condition. This is because the banks typically refuse to do anything to maintain or improve the properties they own. This means that even if the house has major damage, such as faulty wiring or a cracked foundation, the bank will not fix it prior to a sale. This refusal to do repairs not only drastically reduces the change a house will sell, it creates a big burden on anyone who buys it. Even if the price of the house seems good, the cost of repairs could total in the tens of thousands.

The reason banks are reluctant to rent out vacant houses is almost entirely due to the issue of liability. If the tenant in a house gets injured due to some negligence on the bank’s part, the bank can be sued and end up liable for a lot of money in damages. However, banks could potentially rent out empty properties with less liability. If the bank is a large, multi-national bank, it will have more assets at its disposal and will be better able to handle such potential lawsuits. Even so, most banks simply prefer to avoid the liability issue entirely by leaving foreclosed homes vacant.

This means that the empty properties are opened up to all kinds of potential problems, such as damage by vandals and squatting by unsavory characters. Of course, not every squatter is unsavory. Many are newly unemployed or homeless people who see empty houses as an opportunity to get a leg up in life, and will actually take care of a property. Most neighbors don’t mind these kinds of squatters, since they will raise the value of the property. When the house finally does sell, it will be the responsibility of the new owner to take care of damage from vandals and squatters. Banks rarely make a move to remedy such situations.

This leaves it up to the neighborhoods themselves to figure out how best to deal with unmaintained, empty bank owned properties. Neighbors should band together to take care of these properties and monitor them, since it’s for the good of all who live there. Uncared for, empty properties can bring down neighborhood values as well as bring crime into the area. But, with a group of dedicated, caring neighbors, this can be avoided, and the value of the other properties in the area can be maintained.