Housing Doom

If a foreclosing lender shirks his new responsibilities to the community,[1] does a borrower who has been shouldering them until now have a right to carry on, even in default? Doomer greggparadiddle thinks so, and we’re happy to help him publicize his proposal for a new legal principle to make it so.  Originally a Doom comment, we’ve taken the liberty of editing the text for clarity.

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Constructive Foreclosure

by greggparadiddle

I would propose that people in the situation of "Op-Ed Friday: When even the bank doesn’t want the house" (August 14, 2009) could advance an as yet untried legal theory: Constructive Foreclosure. Essentially, if a lienholder has notified a borrower of a default and then does nothing about enforcing it there ought to be a point where law or equity will hold that the lienholder now has legal title and has started the "limitation period" clock ticking on adverse possession.

I would also suggest that States consider amending their laws on adverse possession to shorten the limitation period, and require that an adverse possessor pay the taxes for the limitation period (similar to what California does, but with an even shorter limitation period, say 3 years). A period of 20 years may have been fine for rural England, but modern cities cannot let properties sit for 20 years with a questionable title.

Say the homeowners in the video had been able to maintain a position of constructive foreclosure. Then after they lost title they might have been able to move back in and pay utilities and taxes. If the limitation period were changed to 3 years they might well have owned the house free and clear (adverse possession generally extinguishes all other claims except taxes). Even if the homeowners hadn’t gotten the property back, they would at least have been able to live in the home for the cost of utilities and taxes for the time they were there. And if these homeowners hadn’t moved back, perhaps someone else could have done the same thing and gotten a house for the same cost.

If the banks were faced with such a situation, I believe they might be a little more diligent in foreclosure situations. The cities would likely benefit too: either the bank forecloses and the house is sold or demolished, or at least the property might go to someone who would take care of it.

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Old Doom friend mtnmike was kind enough to send this link around.  He’d seen our recent post on statistical hanky panky, and was struck how his thoughts were moving in a similar direction from ours.

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Culinary Accounting, or Cookin’ the Books!

by Mike Folkerth

Greg Easterbrook said, “Torture numbers and they will confess to anything.” Barrack Obama said, “Americans don’t torture.” Either Barrack Obama doesn’t count number-torturing as a crime or his nose is growing.

Let’s talk about unemployment numbers. . . real unemployment numbers. The announcement that the unemployment rate declined slightly to 9.4 percent in July while only 247,000 additional jobs were lost has been greeted as good news. Really?

How is it possible for the unemployment rate to essentially remain unchanged when 247,000 jobs have been lost?  The reason is simple — the number of people who stopped looking for work rose dramatically.  Six hundred thirty-seven thousand additional people no longer consider themselves looking for work.

If we include the normally counted number of unemployed as well as those who have recently given up looking for work and those who have taken a part-time low paying job because they can’t find full-time work, the implication is that the unemployment rate for July would be at 16.3 percent! And our president stood in his cocky stern manner and announced that employment is getting better on his watch?

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Doomers please welcome Kat Sanders, who has been kind enough to submit the following general commentary on the Home Builders to Housing Doom.  Kat blogs at her Construction Management Degree blog and, within that site, at The Fixer-Upper Blog. She invites your comments and questions either below in the comments or at her email address katsanders25@gmail.com.

Problems in the Construction Industry

by Kat Sanders

It’s not a good time to be connected in any way to the real estate or construction industry. The recent subprime crisis and the disastrous consequences that followed have taken its toll on everyone connected in any way to the real estate and building industries, and as recent statistics portray, there is no sign of a let up any time soon. A look at the figures shows that:

• More than 60,000 workers in the construction industry have lost their jobs
• There is a significant slowdown in the real estate industry with property values falling sharply.
• The severe credit crunch and the sharp fall in the demand for and price of houses has pushed the construction industry to the back foot.
• Builders are being pushed to conform to green building standards and use sustainable material and environmentally friendly designs to construct new buildings
• There is an increasing shortage of skilled workmen and labor
• Contractors are being forced to declare bankruptcy or go out of business
• Construction spending has fallen by as much as 50 percent over the past year
• Contractors who are still in business are trying to hold their heads above water by cutting costs and selling all the assets that they don’t really need but which cost them money to maintain.
• Commercial property prices have plunged leading to reduced salaries and the forcible laying off of staff.

The solutions to these problems may not be easily visible now, especially with the economy still struggling to look up. The only way to tide over this crisis is to cut costs and hope to stay in business till things start to look better. There have been reports that prices in the housing sector have bottomed out and that there are signs of revival in the market. If that is true and if these early trends show promises of continuing, then the problems that the construction industry is facing will solve themselves.

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