Monday, January 21, 2008

How to prevent another housing bubble

Ok, the titles a little misleading; at beast, this would be one step toward preventing another housing bubble. That said, it would be a fairly substantial step, and benefit pretty much everyone I think.

States should pass a law (each state, perhaps based on a template) which does a couple things:
1. Makes all lienholders with a claim on a property jointly liable for all taxes and assessments on the property in the event that the title holder is in default
2. Allows the state to take possession of a vacant property on which there is no claim of ownership after a period of time (say, 6 months), and after all lienholders have been afforded the opportunity to buy out the others and take possession of the property (say, 1 month after notification of state's intent to possess).

If the state takes possession, it would auction the property within a month, sold as-is, but with a guaranteed clean title. The proceeds would pay off the lienholders in the legal precedence for proceeds from the asset. The law would allow the title to be clean at this point (any outstanding claims are void), although the new owner might have costs to bring the property into repair and up to code.

This would have at least two effects:
1. Prevent the ownership limbo, where the property is abandoned and nobody is paying taxes/upkeep, and the lienholders don't want to forclose
2. Encourage more responsible lending by adding more downside risk if the buyer abandons the property

Anyway, just wanted to put up a good idea, since I'm usually bashing on all the bad ideas.

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