Friday, November 26, 2010

De-Incentivizing Home Foreclosures

MeanMesa has posted on this idea before (see: A MeanMesa "Quickie" - Still In Love With the Bankers? - April 6, 2010).  However, the foreclosure attack has, since that posting, simply raged forward unchecked.  It now appears that the mortgage schemers intend to own every house in the country, even if it means taking a hit from their own reckless practices.

The idea in that old posting is that local property taxes should be "joined at the hip" with the ownership of local property.  Home owners are going to pay these taxes in any event so long as they are able to own and occupy their residences.  However, once the property descends through the foreclosure "meat grinder," the burden of paying property tax on it ceases.

Property taxes are for the little people -- not us bankers.

Back to the "burden of paying property taxes ceases" idea, the central concept is that property taxes pay for the commons of the community.  The list of commons may include items such as public schools and civic projects -- museums, treatment centers, court houses, you name it.

The community assets paid for by the property taxes support the value of living in the community, and, in a serious way, support the desirability -- and hence, the value -- of the property being taxed.  Further, the flow of property tax revenues is collective.  Property taxes from home owners without children are still funnelled into the school budget.  Property taxes from home owners who aren't interested in art or antiquities are still funnelled into museums.

"Boiled down to the bones," the idea is that anyone who holds property will pay the property taxes.  There is, however, one glaring exception to this rule.  That exception is the banker or security fund which holds the mortgages.  Although "holding a mortgage" amounts to "making an investment" in the community, the bankers have never felt obliged to "participate" in paying for community enhancement projects.

This should change.  In fact, it should have changed long ago.  It has never been much of an issue until recently when foreclosures mushroomed after the Republican Great Recession hit full swing.

Of course, bus loads of professional screamers -- all hired by the bankers and mortgage schemers --would immediately arrive at City Council meetings and State Legislatures to decry the prospect.  But, on the brighter side, the damage to these "Captains of Industry" wouldn't have to be so great.

Property tax liabilities could be seamlessly injected into the responsibilities of the mortgage holder.  Most of the time, that is, in the majority of cases where mortgage holders simply pay their mortgages and their property taxes, the new proposal would be revenue neutral to both the bankers and the home owners.  However, just when these same "Capitalist eager beavers" rushed to foreclose a home, they would have to include in their cost estimate for that foreclosure the prospect of paying the property taxes until it was resold.

Aside from the benefit of "slowing down" the bankers' foreclosure frenzy, the true benefactors would be local governments.  When property taxes were included in the monthly mortgage payments -- always based on the share of the property held by each partner each month whether in foreclosure of not -- city governments would be more confident about their income stream.  The onus of rectifying unpaid property taxes would become joined with the onus of collecting the mortgage payments.

However, after a foreclosure, the city would continue to receive its property tax revenue from the "new owner" of the property -- the bank or mortgage company which had foreclosed it.  With the number of foreclosures being executed in today's market, this would be a great way to keep municipalities "in the pink" for the duration of the economic disaster.

MeanMesa also thinks that when bankers have more "blood in the dirt," both municipal policies and national politics -- not to mention house prices -- would benefit.

Well, some State Congressmen from Rhode Island are having similar ideas.  Take a look at the following form October, 2009.

The Hive - The Modesto Bee 

3/10/2009   Bill makes banks liable for property tax on foreclosed homes

STATE HOUSE – Central Falls had the highest property foreclosure rate in southern New England in 2008 (57 foreclosures for every 1,000 residential properties), with Providence not far behind in third place (45.8 per 1,000). 

In total numbers, Providence led the region with 1,447 foreclosures, ahead of Boston and Worcester. During that year, Pawtucket had 384 foreclosures, Cranston had 293, Warwick had 184 and Central Falls had 125.

“There is enormous pain and suffering in our state as a result of all of these foreclosures,” said Rep. John M. Carnevale (D-Dist. 13, Providence, Johnston), “but the suffering is not restricted to the individuals whose properties have been foreclosed upon, or tenants evicted from these homes. Cities and towns are losing vast sums of property tax revenue despite the fact that the property still exists and some entity – a bank or other mortgage lender – holds the property.”

To help ease the strain on city and town budgets, Representative Carnevale has introduced legislation to require “a bank or other mortgagee commencing a foreclosure process to pay the city or town the outstanding property taxes on or before publishing the first foreclosure notice.”

“Despite a foreclosure, there is still real property with a real value located in the community,” said Representative Carnevale. “The bank or other mortgage company foreclosing on the property controls this asset and should be liable for the property tax encumbrance on it.”

“I know the banks will argue they should not have to pay,” he said, “but let’s be blunt. When the bank moves that property – at a foreclosure sale or some other transaction – the bank can easily recoup any amount they have paid to the municipality in property taxes on it.”

“There is no loss here for the bank. It is cities and towns that are the big losers because of the decreases in property tax revenues, which plays havoc with municipal budgets and ends up hurting every citizen of that community,” said Representative Carnevale.

The bill, (2009-H5295), has been referred to the House Committee on Judiciary, but has not yet been scheduled for a hearing. Co-sponsors include Rep. Samuel A. Azzinaro (D-Dist. 37, Westerly), Rep. John G. Edwards (D-Dist. 70, Portsmouth, Tiverton), Rep. Roberto DaSilva (D-Dist. 63, East Providence, Pawtucket) and Rep. Peter F. Martin (D-Dist. 75, Newport).

Representative Carnevale has introduced a second piece of legislation dealing with mortgage foreclosures and sales. That bill, (2009-H5123), would require a mortgagee to notify municipal tax collectors of any pending mortgage foreclosure sales and dates within the community and to maintain a public list of the property scheduled to be foreclosed upon.

“Banks have their businesses to run and municipalities have their duties to do,” said Representative Carnevale. “But the current foreclosure crisis has a wide impact, and there needs to be better sharing of information and cooperation between the private and public sectors to help us all – our cities and our state – get through this.”

The bill has been referred to the House Committee on Municipal Government, which has held it for further study. Co-sponsors include Rep. Karen L. MacBeth (D-Dist. 52, Cumberland), Rep. Michael A. Rice (D-Dist. 35, South Kingstown) and Representatives Edwards and DaSilva.

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