Bank of America taking bulldozer to foreclosed houses
Bank of America, faced with a glut of foreclosed and abandoned houses it can't sell, has a new tool to get rid of the most decrepit ones: a bulldozer.
NEW YORK — Bank of America, faced with a glut of foreclosed and abandoned houses it can't sell, has a new tool to get rid of the most decrepit ones: a bulldozer.
The biggest U.S. mortgage servicer will donate 100 foreclosed houses in the Cleveland area and in some cases contribute to their demolition in partnership with a local agency that manages blighted property.
The bank has similar plans in Detroit and Chicago, with more cities to come; and Wells Fargo, Citigroup, JPMorgan Chase and Fannie Mae are either conducting or considering their own programs.
Disposing of repossessed homes is one of the biggest headaches for lenders in the United States, where 1.7 million houses, or one in every 77, were in some stage of foreclosure as of June, according to research firm RealtyTrac of Irvine, Calif.
The prospect of those properties flooding the market has depressed prices and driven off buyers concerned that housing values will keep dropping.
"There is way too much supply," said Gus Frangos, president of the Cleveland-based Cuyahoga County Land Reutilization Corp., which works with lenders, government officials and homeowners to salvage vacant homes. "The best thing we can do to stabilize the market is to get the garbage off."
Bank of America had 40,000 foreclosures in the first quarter, saddling the lender with taxes and maintenance costs. The bank announced the Cleveland program last month, has committed as many as 100 properties in Detroit and 150 in Chicago, and may add 10 cities by the end of the year, said Rick Simon, a company spokesman.
The lender will pay as much as $7,500 for demolition or $3,500 in areas eligible to receive funds through the federal Neighborhood Stabilization Program.
Uses for the land include development, open space and urban farming, according to the statement. Simon declined to say how many foreclosed properties Bank of America holds.
The tear-downs are in varying states of disrepair, from uninhabitable to badly damaged. Simon said some are worth less than $10,000, and it would cost too much to make them livable.
"No one needs these homes; no one is going to buy them," said Christopher Thornberg, founding partner at the Los Angeles office of Beacon Economics, a forecasting firm. "Bank of America is not going to be able to cover its losses, so it might as well give them away and get a little write-off and some nice public relations."
Donating a house may create an income-tax deduction, said Robert Willens, an independent accounting analyst based in New York. A bank might deduct as much as the fair market value if a home wasn't acquired with the explicit intent of knocking it down, he said.
Wells Fargo and Fannie Mae already started donating houses and demolition funds in Ohio. Wells Fargo, the biggest U.S. home lender, gave 26 properties and $127,000 to the Cuyahoga land bank, said Russ Cross, Midwest regional servicing director for Wells Fargo Home Mortgage.
Since 2009, Wells Fargo has made more than 800 donations nationwide, the bank said.
Fannie Mae, the mortgage-finance company operating under U.S. conservatorship, made its first deal with the Cuyahoga land bank in 2009, and sells houses to the organization at a "very nominal value," or about $1 and an additional $200 in closing costs, said P.J. McCarthy, who heads alternative disposition programs.
Fannie Mae sold 200 foreclosures to the Cuyahoga organization in 2010 and has similar programs in Detroit and Chicago. Cleveland is the only city where Fannie Mae contributes $3,500 toward demolition, McCarthy said.
"It's an economically justifiable transaction," McCarthy said. "Holding on to a property that might sell for $1,000 or $2,000 or $5,000 for several hundred days is not." The oversupply of homes once prompted Warren Buffett to quip that the solution was to "blow up a lot of houses — a tactic similar to the destruction of autos that occurred with the 'cash-for-clunkers' program.' "
Still, the knockdowns aren't likely to outpace foreclosures, said Rick Sharga, RealtyTrac's senior vice president. Foreclosures may accelerate as banks clear a backlog caused by soft real-estate markets and legal disputes over tactics used to seize homes.
"These sorts of programs will basically only be nibbling on the edges," Sharga said.