If the intent is to deal with all of these underwater mortgages and deteriorating neighborhoods, they'd be better off leaving everything as-is and just taking possession of the homes through a tax lien.
Again -- I may be overlooking something completely on this ... so feel free to flame away!
I don’t think they seize the high mortgage - they chuck it.
They, in effect, steal the house from the bank holding the high mortgage and “sell” it back to the homeowner for the lower price, but now they (BOs cronies) own the mortgage.
The plan is the mortgage holder only gets what the house is worth and loses the difference between the value and the outstanding mortgage amount.
“Maybe I’m missing something here.....”
The “town” stands to gain considerably under this proposal. More subtly, the people who sit on town councils also stand to gain. That’s what makes this such an ominous proposal. You’re looking at mainly the front end of the “deal” instead of the outcome over time.
Using your example, assume the value of the outstanding mortgage is $300K. The home is worth $200K. There have been no mortgage nor property tax payments made for let’s say 2 years. There are several entities involved with this and one should step into the shoes of each to see the combination of motivations involved. Oh sure, the town could foreclose, but for their $7300 in unpaid property taxes, (and remember they didn’t SPEND that money, they just didn’t receive it like they thot they were gonna) they could acquire an ex meth lab that costs $45K (or more) to remediate and bulldoze and is now an empty lot.
While the mortgageholders (which could include actual lenders who remain holding paper and pension funds who own assembled tranches of bundled morts) are going to be righteously PO’ed, to preserve their interest(s) they are faced with the same type(s) of conundrum that anyone facing litigation MUST, and that is the phenomenal cost and uncertain outcome of same. M-holders are looking at (and this is wildly generalistic) the possibility of owning mort paper that has been sold multiple times, that has been stuffed with grade “D” paper when they bought it as grade “B”; with uncertain titles all clouded up via MERS shenanigans and the non-trivial possibility that they will be bumped off their right(s) to foreclose entirely. You are a pension fund. You own a $100 million bundle of morts that were bundled by Snarfball Bank into some incredible toxic soup of 341 mortgages in Inland Empire, CA, on 341 houses, some have been bulldozed because they turned into meth labs or illegal immigrant hotels or homebrew auto scrapyards. To sue the bank that bundled these together is a daunting prospect. In actual case law, I would say that a bare preponderence of cases have had outcomes in accordance with existing law: In other words, many of these robosigning cases where the notes have been separated from the mortgages (eg; the right to foreclose has been clouded by virtue of what happened to notes, or signatures) judges have not necessarily decided by using the statute of frauds, clearly the applicable law. The outcomes of these cases thus have become quite unpredictable.
The long and short of it is, just like with any other other stenchy situation, the lender ultimately has to make a decision whether to take 38.2% of something and eat their loss, or stay in the game for years, where the statue of limitations is coming up here for most of this mort fraud, and possibly take 17.6% 3 years from now. Or less.
The town converts utter nothingness into property-tax paying property at SOME level, whereas it is receivng NOTHING today.
And of course the investors make $20-$30-$40K on each house they so convert and if they have to flip $20K to the dweebs on the local town council to get the deal done, like most political errr, “incentivization”, that’s possibly the best investment they could ever make.