Earlier this year, Bank of America announced that it would be donating houses in the Cleveland area to a local agency that manages blighted property. Now, in addition to its donation of property, the lender will also be contributing to the demolition of those houses[1]. BofA has announced similar plans for properties in Detroit and Chicago. While this might not sound like that great of a “donation” at first, in reality the lender may be seriously contributing to the impacted communities. According to a report by RealtyTrac, as long as the market is flooded by repossessed houses would-be buyers will continue to hesitate to make a move and acquire property. In fact, tearing down some of the truly undesirable options out there could result in an improved situation for the rest of the market. As president of the Cleveland Land Reutilization Corp Gus Frangos puts it, “The best thing we can do to stabilize the market is get the garbage off.”
Wells Fargo, Citigroup, JPMorgan Chase and Fannie Mae are all considering similar demolition programs. Homes eligible for demolition range from “uninhabitable to badly damaged,” with many worth less than $10,000[2]. Given the cost of making them livable, “Bank of America…might as well give them away and get a little write-off and some nice public relations,” explains forecasting firm Beacon Economics LLC partner Christopher Thornberg. And if the property was not initially acquired with the explicit intent of knocking it down, the lender can get a deduction for as much as the fair market value.
Do you think that this is a good move for BofA to make? Should other lenders follow suit?
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[1] http://www.bloomberg.com/news/2011-07-27/bank-of-america-donates-then-demolishes-houses-to-get-rid-of-foreclosures.html
[2] http://www.businessinsider.com/bank-of-america-gives-away-bulldozes-homes-2011-7
Well, ALL of the banks you mentioned NEED some public relations right about now! Everyone I talk to is walking away from them in droves, including checking and savings account holders! This reminds me of what I call the ‘corporate suicide’ that I first saw when Westinghouse self-destructed.
They have the right idea, get and keep foreclosed homes and short sales off the market. The REAL way to do this is to modify mortgages for those still in their homes if at all possible, and STOP PLAYING GAMES! By which I mean, playing with numbers to disallow income and thus the modification, ‘losing’ mortgage payment checks and then disallowing the modification, etc. But for those homes where it is too late to modify, then perhaps this is a workable plan, but I am not sure all the PR in the world is going to help the ‘big six’ survive!
It would have to be a very large number of demo’s to make a difference in the normal market supply and demand forces, this will probably be more of a publicity stunt than anything else.
It’s an excellent idea. When there’s an oversupply of inventory such as exists right now in many cities across the US, it makes sense to eliminate some of the supply. When that supply is close to or is uninhabitable, it’s not doing much good anyway, is it? Some cities like Detroit and Cleveland have an excellent opportunity to take some of their most blighted area and convert them to parks or even better, neighborhood farms where people can grow their own food. Cities could help themselves so much by creating things like that from abandoned lots.