By: Craig Haskins

Many thoughts without answers are roaming through my Starbucks-filled mind this beautiful Monday morning.   An article from last week’s Wall Street Journal made me giggle.  Here goes.

In Indio California a new law allows the city’s police to arrest bank employees when their newly acquired foreclosed homes fall into disrepair.  This is no joke.  The police chief in Indio boasts that “we’re going to come arrest you and take you to court in California” on criminal charges.  

Let’s start by setting up some points before tackling this subject.  Five years ago real estate was booming, property values were high and loans were simpler to get.  In 2006 things began to turn as values tumbled, loan underwriting stiffened, the economy soured and the word ‘foreclosure’ became one of the most googled terms.   By 2009, lenders now own of tens of thousands of homes. 

So who maintains foreclosed homes?  The lenders do.  In Wisconsin the foreclosure process is pro-consumer and typically takes ten months before the lender becomes the owner.  At that point the property has likely fallen into such bad shape that the lender has to do more than mow the lawn and paint the trim.  The lender will likely list the home for sale with a local real estate agent, who will probably employ local companies to assist with the cleanup and repairs.  If that doesn’t help, most Wisconsin municipalities have blight ordinances that allow the municipality to perform needed maintenance.  Many subdivision homeowners associations can to do the same.  Both the city and association can lien the property to ensure payment by the lender or the bidder at the foreclosure auction. 

Should leeway be given to lenders while they try to repair and resell the home to your next neighbor? Or should lenders be treated like criminals and arrested like in Indio?  I think some leeway should be given to lenders who come into title after foreclosure.  These lenders are overwhelmed with changes in the industry, new regulations and a volatile economy.  I don’t see how adding this extra layer of responsibility will help things – for lenders and for consumers. 

The alternative is that lenders could add additional costs to loans as a set-aside for possible future maintenance obligations.  Or worse, lenders could just avoid lending money in certain areas with odd ordinances.  Both options would hurt good-paying borrowers.  And wouldn’t you want your local police force working on real crimes and not arresting lenders who own homes with long grass and dandelions?