In some cases where the bank is continuing to pay property taxes on foreclosed homes and maintain them, a municipality that takes homes off the bank's hands may actually be doing the bank a huge favor.
Doing the bank a favor? What happens when a bank completely writes off an asset from the books?
Your example also presupposes that the value of the property will never rise and the real estate market will forever be depressed.
The reason the banks are holding foreclosed properties is because (a)they anticipate a rise in the market when Obama is gone.
(b)They will eventually sell the property for something when values stabilize.
(c)They can’t afford the total asset loss incurred by government ‘doing them a favor by taking it off their hands.”
(d)If they have substantial part of their assets tied up in foreclosures which are confiscated, they will have to close or go into bankruptcy because their assets will be below the minimums set by regulations.
An argument that the municipality isn’t doing anything wrong “from a strictly legal standpoint” might be true, but it is an argument that is ethically and morally bankrupt.