Posts Tagged ‘cleveland’

The Cleveland foreclosure crisis is worsening from day to day. The neighbourhoods of the city are dotted with vacant houses, owned by lenders or the banks. Financial bodies now possess more than 11,000 properties in Cuyahoga County according to project reports undertaken by Case Western Reserve University. The numbers account for more than half the units in Cleveland. The banks are selling these houses for peanuts to investors who are snatching them up for some hundred dollars!

James Odell Barnes has for 30 years been the first person Wall Street lenders called when they wanted to get rid of foreclosed houses. Currently Barnes is buying 100 houses in a week in Cleveland and Detroit. He is a broker and helps investors buy houses for as low a rate as $250 per house. In turn the investors sell them at a price that is 20 or 30 times higher than what they paid. David Green is a worker in a restaurant. He is seeing hand written signs on houses in the locality offering rent at less than half the price his restaurant is paying. Green has now entered the game and trying to fix a house he had bought for $18,000 in the middle of the town. Like him there had been 100 to 150 buyers who had bought similar houses from one Jeff Ball. Ball explains that he is meticulously matches the houses with the income of the potential buyers to make the transaction viable and affordable. This scheme greatly helps those with bad credit.

But it has not been smooth sailing for all the brokers. Some have become very unpopular. Destiny Ventures of Tulsa has been twice tried in court for violating code. They did not come to court and were unwilling to pay fines. The court seized a bank account to adjust one set of fines.

At this point another danger is brewing following on the footsteps of the foreclosure crisis. It is the investors who are buying up units for a song and then flipping them for neat profits. When local buyers are not available these sellers go online. Five buyers have contacted from Canada to buy houses in Toledo and Cleveland. The local administration is a bit worried about the influx of outsiders who might not be held accountable for the health of the locality, as they are interested only in the flipping.

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More than $3 million has been sanctioned by the Ohio Housing Finance Agency. It will enable counseling agencies to operate with counseling through 18 centres across the state. This $3.06 million grant emanates from the National Foreclosure Mitigation Counseling Program and it is part of $180 million action taken by the Congress in its fiscal 2008 appropriations bill. The programme funding is being activated through NeighborWorks America based in Washington DC dealing with housing matters.

How much each organization will get is not being specified until finalization of contracts. One of the beneficiaries will be Mid-Ohio Regional Planning Commission based in Columbus. In south east Ohio, the Corporation for Ohio Appalachian Development was declared qualified for the federal grant to serve the people of that region. Also on the qualified list was Community Action Commission of Fayette County southwest of Central Ohio. More than half of the agencies selected are concentrated in and around Cleveland. Foreclosures have been the highest making it rank sixth in the foreclosure race amongst all the metropolitan cities in the country.

The country is in the grip of a foreclosure tsunami. Although the primary accused is the sub-prime floating interest rate mortgage there are many other factors at play that have aggravated the situation – a situation that has caused whispers of recession being heard. Since 9/11 the stock market has been wobbly. There have been job losses. Detroit is one of the worst hits with the automobile industry floundering. Population levels have also gone down. Together with this medical bills have gone up and divorces being rampant have caused instability in the social structure. To add fuel to the fire a loan culture came to be aggressively sold via the credit card craze. It was thought that with money being pumped into the market by consumers, it would give the flagging economy a kick. Nothing happened. People kept on taking loans to get out of other loans. Into this mess crept in sub-prime loans meant to cater to those who could not qualify for prime loans because of modest income and shaky credit. The loans were aggressively peddled lured by commission and investment hopes. The general public were made pawns to snap up loans they could not run. The scheme backfired with lenders having taken on more foreclosures than they could digest. Foreclosures now dot the desolate land. No remedy has been found – only short term palliatives are being introduced.

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Foreclosures have devastated house owners together with entire neighbourhoods. Now it is time for the tax department to feel the hard pinch. The treasury offices across the country are getting ready for the river of taxes to run dry.

Innumerable houses in Cleveland have been damaged by vandalism, fires and the weather to a point of no return. The lenders will now just walk away. Treasurer Rokakis of Cuyahoga County apprehends that the day is not far when the lenders will call on them saying that they just can’t fund demolition of the units and are going away. This trend will pick up in other places where foreclosures have teamed up with job losses to make the situation murkier.

The figures about vanishing taxes are already rolling in. Sun belt cities are top rankers in the foreclosure crisis. Here a conference of mayors forecast that there would be a reduction of $3 billion in property taxes in 2008. Cities had begun to count their dollars in advance relying on a continued growth. Now there is going to be a scramble to close the yawning gaps in revenue collection and expenditure.

The situation will not improve even if lenders manage to sell off some estates. The new owners will demand a revision of valuation of these damaged houses. Taxes will have to be lowered. Even the house owners not caught in the foreclosure net will demand re-assessment because of changed circumstances affecting the entire neighbourhood.
Rokakis claimed that already 14,000 requests for re-valuation have been noted in 2007. Next year the number is sure to rise to anything between 20,000 and 25,000.
The money coming from fees charged from property sale transactions is also going to slow down. The number of sale deeds has dropped by 40%. This has negatively impacted on state transfer fees as well as deed, mortgage and registration charges. All this will tell on the city governments. Anything touching the state trickles down to the local levels.

On the other hand cost of communal services continue to rise with the increase in demand for help. The small town of Shaker Heights in Ohio will spend $500,000 in the current year to maintain abandoned houses. Cleveland Heights will fund $75,000 only to keep gardens trimmed. Three years ago $6,000 had been sufficient. All the thanks for this topsy-turvy picture goes to the foreclosure crisis.

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A disproportionate tax bill is a blow from an unexpected quarter for one who has failed to meet mortgage dues. Yet the bill accuses the person of having made an extra earning! This is unbelievable but true in Michigan and other parts of the country.
Those who negotiate with the bank for some unusual refinancing scheme are usually at the receiving end when they sell their houses for an amount, which is less than the outstanding dues. It is a three-pronged attack. First the victims lose their home and hearth. Secondly the amount they get is less than what they owe. Last but not least comes the tax bill from unsympathetic authorities. Many are ignorant about tax rules because so far real estate valuation has been rising. But the curve is now falling. If the bank forgives $20,000 on a $100,000 loan then the former is calculated to be an income with tax tags attached to it. Matters are spinning out of control in Michigan where recession is on an all time high binge.
A Michigan Democrat is up in arms against this and trying to change this rule before the year comes to an end. Unfortunately it will only be a temporary reprieve and will apply only to the original house of the borrower. Many had availed of easy loans to move into up swinging localities with better facilities. On 31st August President Bush gave his support to it as a part of the package helping house owners. The banks too approve of the scheme, as they do not benefit from foreclosures. The chief economist Richard DeKaser of National City Corporation in Cleveland is of the opinion that if changes are made and there was a tax freeze, borrowers will have more leverage for negotiation.
The only way to escape the dragnet is to file for bankruptcy. If the debt is repaid under the cloud of bankruptcy then tax is not levied. A second way out is to fill out a complicated tax form (982) and claim to be insolvent – their debts were bigger than assets. The average person is ignorant about such fine escape routes. Only a seasoned tax consultant could steer the victim out of the maze. It will not pull down ‘For Sale’ notices overnight but will certainly act as a cushion for future falls.

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