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Every Foreclosure Costs the Government $20,000

One of the consequences of building a business model on the assumption of perpetually rising housing prices is that, when those values stop rising and actually begin falling, it becomes increasingly difficult to stay in operations at the previous bubble level. Local governments are finding this out the hard way, as they struggle to generate revenue through property taxes in the midst of high foreclosure rates.

Homeowners who end up facing foreclosure can expect to pay an average of over $7,000 if they get back on track. This includes administrative fees the bank charges, late fees, legal fees, foreclosure costs, accelerated interest, and whatever other junk fees the bank can come up with. While this seems like a large amount of money, it is a small sum compared to how much the typical foreclosure costs the local government.

When a house goes into foreclosure and the lender ends up purchasing the house back at the auction, it often sits empty and falls into a state of disrepair. The longer it sits on the market with no buyers, the more it will deteriorate and the more drag it will have on local property values. The government will also be expected to provide services to the property even though it is generating little, if any, property tax revenue.

Just to keep up on the property, including utilities, sewer and water services, upkeep and maintenance, and property taxes, local governments lose an average of $20,000 per foreclosed house. During the boom, these same properties may have generated thousands of dollars per year in taxes and service charges while requiring no government involvement in maintenance or upkeep.

Local governments, therefore, should be expected to do whatever they can to attempt to change this new outflow of funds and loss of tax dollars when homeowners are unable to stop foreclosure. Unfortunately, instead of cutting back on salaries or staff and cutting tax rates to encourage new buyers to purchase these foreclosed homes, counties and cities have turned to coercion and violence to make up budget shortfalls.

Thus, there are more speed traps to hand out tickets to drivers putting no one in danger but operating a vehicle in a manner contrary to bureaucratic opinion. Parking meters in large cities are more expensive, run fast, and fill up sooner, while drivers receiving parking tickets anyway. Property taxes stay the same, if not rise, during the depression, which discourages properties in the area from being sold.

More rules, regulations, fees, fines, taxes, and stimulus packages will not encourage a turnaround in the housing market or the economy. These just increase the burden private people have to bear to fund varying levels of government that are running out of money anyway. While all of us have to get by on less income and save more, politicians and bureaucrats believe that they can solve all the problems just taking and making more money.

But the more government services weigh down communities and the nation as a whole, the longer it will take for business and people to recover. The less money we all have to spend on the things we want, the fewer businesses will be able to provide those goods and services and the more unemployed people we will have. This is unfortunate, and the nation needs to shake off the burdens of government to recover.