Trash-outs as performance art (1 April 2008)

Last Friday, the WSJ ran an intentionally inflammatory article about "trash-outs," when foreclosed homeowners vandalize their homes before being forced to abandon them to the banks. The opening gambit of the article is to depict how some banks have taken to bribing foreclosed occupants not to trash the homes before leaving.

These days, bankers and mortgage companies often find that by the time they get the keys back, embittered homeowners have stripped out appliances, punched holes in walls, dumped paint on carpets and, as a parting gift, locked their pets inside to wreak further havoc. Real-estate agents estimate that about half of foreclosed properties to be sold by mortgage companies nationwide have "substantial" damage, according to a new survey by Campbell Communications, a marketing and research firm based in Washington, D.C.
The most practical way to ensure the houses are returned in decent shape, lenders and their agents say, is to pay homeowners hundreds or even thousands of dollars to put their anger in escrow and leave quietly. A ransom? A bribe? "Yeah, somewhat," says John Carver, an agent specializing in foreclosed homes for Prudential Americana Group in Las Vegas. But "you lose a house, and then you get some financial help -- it's a good thing...It's a win-win for both parties."

Yes, a real "win" for the people who have lost their house, who are "losing the dream" in the words of a real-estate agent quoted in the story. A tough break, to be sure. Still, it is also natural for readers to respond to an article gleefully detailing the spiteful destruction on the part of delinquent borrowers with perplexity. You might even be inspired to think, What a bunch of assholes.

At Calculated Risk, Tanta takes issue with this short-sighted attitude and seizes on the phrase foreclosed tenants to provide the rationale behind such vandalism.

When you take an interest-only no-down-payment loan to buy a house at market price--that is, at anything other than a significant discount to market price--you are in effect, if not in fact, merely "leasing" the house from the bank....
Possibly some borrowers are coming to the belated recognition that they were, de facto, not much more than tenants who were paying well above "market rent," but the market no longer allows them to "sell" the "lease" to the next sucker, and the law does not allow them to simply forfeit the security deposit and move away. To be a "foreclosed tenant" is to live in the worst of both worlds.... They begin to grasp that they had only ever been given a short-term lease on the "American Dream," not a piece of the "ownership society" pie. More than a few of them are very, very, crabby.

If success and respectability in America is popularly predicated on homeownership, then losing a home is much more likely to make someone lose regard for restraining mores. They tried to "work hard and play by the rules" that said you start by securing a home for your family. But then forces beyond their control -- shifts in interest rates and financial risk management, in the economic climate and the future of house prices (which everyone was virtually guaranteeing couldn't come down) -- made the mortgage payments untenable and refinancing impossible. So the conclusion that following unspoken rules about conduct is a waste of time is actually fairly understandable. The joke of the American dream was on them, and they want to turn the tables by taking the implication of that one step further: If we can't realistically aspire to society's rewards, we won't adhere to its codes.

It is within the realm of possibility that some folks engaging in "trash-out refinances" are, well, making the point that the joke's on you, Mr. Bank. You might consider it a kind of performance art of the gallows-humor subgenre.

Subprime borrowers: the return of Lazlo Toth?