Foreclosure Crisis Affecting Local Governments to the Point of Facing Bankruptcy

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The foreclosure crisis raging across the country is beginning to have an effect on governments at the local and state levels. Declines in property values and more abandoned homes will lead to a decrease in the tax base that cities and counties depend on to say in business. Local governments in some areas are already facing insolvency due to high foreclosure rates and a dollar that is losing value by the week.

With decreased tax revenue, some of the wasteful increases in government over the past decade may have to come to an end. Local governments rode the upside of the housing bubble, increasing property taxes and issuing municipal bonds to fund new developments, like subsidies for strip malls and Wal-Marts. And as long as property values were increasing, homeowners and people moving into the area were more willing to pay a premium for living in highly-desired neighborhoods and watching their home equity increase every year.

The collapse of the real estate market has hit local governments even harder than it has hit the banks, who can rely on Federal Reserve bailouts to get them through the credit crunch. But now the local governments that made the most generous donations to big business at the expense of the people are experiencing a flight of homeowners out of communities. They either go rent, which does not help increase property tax revenue, or they move out of the expensive community entirely.

And now their houses are sitting abandoned, owned by the lenders who gave out loans for properties that were worth far less than how much was owed on them. Even a minor number of properties in this condition, vandalized and empty, can drag down the quality of a neighborhood, reducing home values. Squatters may move in, creating crack houses of once-desirable McMansions, and local crime rates may increase even as revenue to pay for police departments is falling.

There are many solutions that could be proposed on the local level to help homeowners in communities stop foreclosure to avoid creating ghost towns in suburbia. Cutting waste, reducing tax burdens on homeowners, eliminating subsidies to businesses, or instituting local currencies to facilitate more trade could all help keep the noose from closing around whole cities. But many local governments have only proposed increasing the size of government further, by instituting local and state commissions and hotlines offering foreclosure advice.

Eventually, in some communities the worst may happen and the local institutions of government may fail. Governments will not take in enough in property taxes to keep operating at such high levels, and simply pulling over more people to hand out speeding tickets will not make up for a great loss of income. When there is a danger that governments won’t be able to pay their workers, there will be far fewer services and even the danger of some governments facing bankruptcy in paying back their own debts to banks and the government.

By Nick Adama

The ForeclosureFish website has been created to provide homeowners with information designed to help them stop foreclosure and defend against a lender’s lawsuit. The site describes various methods that may be used to save a home, such as refinancing, filing bankruptcy, loss mitigation, deed in lieu of foreclosure, selling, and more. Visit the site to read more articles about how foreclosure works and how the process may be avoided before it is too late: http://www.foreclosurefish.com/

Tagged:

financing, foreclossure, home equity, Home Value, lenders, loan, loans, property tax, refinancing

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June 26 2010 08:33 am | Kitchen

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