Friday, February 29, 2008

You'd think that renters wouldn't feel the direct effects of the American mortgage crisis. You'd be wrong. As prices drop, and soi-disant "investors" find themselves owing more on their "investment property" than it is now worth, more and more of them are going to foreclosure, letting the bank take the property --- and the loss. And the first thing the bank does? Evict the tenant. Even shut off the utilities to force them out. As one real estate lawyer explains:

Banks don't want to manage a property. They foreclose and then they sell it. The risk they're exposed to, they take over this property, if there's heating issues, if there's, you know, housing code violations, that can be big money and legal fees.
But if they can't sell it, then what?

A landlord once explained to me that you want to have a tenant in a place not just for the rent, but so that the place gets cleaned, and so there's someone there to tell you about problems early, before they get expensive. That must have been one dumb landlord, because the smart guys at the banks know it's much better to have the property vacant and falling down, like the foreclosed-on properties all over one Cleveland neighborhood, with

...street after empty street of boarded-up houses, their roofs caving in, collapsed balconies hanging from the fronts of buildings. ...

Bins and rubbish litter the street. Signs warn trespassers the structures are unsafe. People have spray-painted “No copper” or “No metal” on their doors to deter crooks who have stripped anything of value from these decaying shells. Even brick steps have been ripped off, leaving houses that look as if they are floating on a dark sea of garbage.

Now, that's the kind of thing that preserves value --- the value of a good night's sleep. The neighborhood drug addicts may sell the furnace in pieces to some scrap metal dealer, but the bankers will never get any of those annoying late night phone calls that the place doesn't have any heat.

By the way, on the off chance that anyone reading this is in property management, with a friend at a mortgage service company, this is a growth market --- or it will be, once they come to their senses. Go for it. The status quo isn't good for anybody...