Cities Working Against Themselves in the Battle Against Foreclosures

May 24th, 2008

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Minneapolis on the Decline: A Case Study

I have been following a fraud case that the city of Minneapolis has played a major role in. To be more exact, the Minneapolis City Council has been a driving force behind it. North Minneapolis has long been considered a high crime area and that part of Minneapolis is why the city has been nick-named “Murderapolis.” The foreclosure rate in the city has been setting new foreclosure records on a monthly basis and the abandoned houses that are left behind has caused a serious epidemic for the city to contend with.

Minneapolis is losing residents…Fast. The city has been very vocal with their efforts to get owner-occupied people to buy houses there to help solidify the city and rebuild the communities there. Most of the abandoned houses there have had the windows and doors boarded up to keep squatters from claiming a temporary place to stay. Even the city has acknowledged that the “squatters” are mostly “crack users” and with them comes the crime.

To summarize…Record highs in foreclosures has caused many homeowners to abandon their house. Cities have encountered increased crime with so many boarded up, abandoned properties. The Task: Do whatever is needed to entice people to buy and move into those abandoned properties.

The Cities want people to BUY the abandoned properties…BUY.

Cities such as Minneapolis are working against themselves, even though they claim to be working towards improving their cities as a great place to live.

That IS funny though and sure does make a press release sound good.

People Buying Houses Usually Need a Lender to FUND it.

Minneapolis, Baltimore, Cleveland and Buffalo are cities that have sued lenders that have foreclosed on houses in those cities. Those cities are claiming that the lenders are at fault for the abandoned houses and the increase in crime. Many of the houses the lenders own (REO – Real Estate Owned) are in rough shape and need to be fixed up. Historically, lenders sell their REO properties “as is” and have already lost a large amount of money and are not about to put more money into a house to fix it.

That makes sense. Properties like that are attractive to investors because they can represent a good deal.

It turns out, neighborhood associations in north Minneapolis approached REO departments of the lenders who own abandoned houses in that area. According to the reports, they “were unsuccessful” in buying those houses from the lenders. What does that mean? It means the city went to the lender and gave them a low-ball offer and the lender said, “No thanks.”

Cities can’t buy at a large discount so… Sue Them!

Those cities are losing the battle against crime and rather than increase their efforts to do something about it… They are opting to invest a massive amount of money into suing the lenders that own abandoned houses because, the lenders refused to sell to them.
That sounds pretty intimidating to a lender. They might see such a situation as “You can either sell us the house at a big discount or