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Thursday, December 10, 2009

"Toxic Titles"

by Calculated Risk on 12/10/2009 12:17:00 AM

See update below for an earlier use of "toxic titles".

Just another addition to the crisis lexicon ... "toxic titles" ... from Fed Governor Elizabeth Duke: Keys to Successful Neighborhood Stabilization (ht Brian)

Communities with weak underlying economies are characterized by a long trend of population loss, gradual impoverishment, and strained municipal resources. For cities like Cleveland, Detroit, and Indianapolis the increase in foreclosures over the last few years has exacerbated a pre-existing vacancy problem. The increased rates of foreclosures and the related economic downturn have hastened a cycle of decreasing property values. Declines in state and local property and sales tax revenues result in even more vacant homes and deteriorating neighborhoods.

Many community organizations and homeowners have been frustrated by the difficulties of working with mortgage lenders and servicers, and these problems are even more exaggerated in weaker market cities. In the most devastated neighborhoods, some lenders do not even complete the foreclosure process or record the outcome of foreclosure sales because the cost of foreclosing exceeds the value of the property. Anecdotal evidence suggests that these "toxic titles" have placed significant numbers of properties in a difficult state of legal limbo.
I've seen toxic titles before in downturns with properties listed for $1 and still no takers ...

UPDATE: Here is an earlier use of "toxic titles" from an article by Mary Kane in Jan 2008: ‘Toxic Titles’ Haunt Cities in Mortgage Meltdown
'Walkaways wind up with “toxic titles,’’ [Kermit Lind, a Cleveland law professor who specializes in housing cases] says. The mortgage company retains a lien, or a charge, on the house, but the borrower still is considered the owner. The property sits in limbo, with the mortgage usually exceeding what it would sell for, because of its decline. If the city has to tear it down, it adds its own $8,000 to $10,000 demolition lien. Not surprisingly, potential buyers aren’t exactly lining up. Non-profit neighborhood groups that could fix up the property face long and expensive legal battles to claim it.