Mpls. Tornado Damage Complicates Foreclosures

MINNEAPOLIS (AP) — More than 200 of the homes damaged in the deadly tornado that hit north Minneapolis were already foreclosed or vacant, making it difficult to determine if the homes are insured.

Many of the mortgages that have gone into foreclosure went to multiple owners, so it’s hard to tell who would be responsible for insurance.

The Minnesota Department of Commerce requires state-chartered banks to maintain insurance on foreclosed properties. But that doesn’t apply to nationally-chartered banks, and in many cases, it’s unclear whether national lenders who own foreclosed homes have insurance on them.

Mark Kulda, vice president of public affairs for the Insurance Federation of Minnesota, said most of the big lenders don’t.

“I think for the larger lenders who are going through this, the chances of them buying an insurance policy is pretty small,” Kulda told Minnesota Public Radio. “They probably did something to assume the risks on their own. And if that’s the case, there could be many properties in north Minneapolis that are not insured if they were lender-owned and vacant at the same time.”

Rick Sharga, a senior vice president for the foreclosure research firm RealtyTrac, said even if the foreclosed property is insured, that doesn’t mean the lender will pay for the tornado repairs. Lenders will compare the cost of building the homes versus what it would be insured for, he said.

“It really comes down to an economic decision,” Sharga said. “The more it’s going to cost the lender out of pocket, the less likely they are going to invest money in hopes of recouping something.”

If that’s the case, lenders might walk away from properties, leaving the city to deal with them.

Both Kulda and Sharga agree that solving the insurance question will have to be done on a case-by-case basis.

Nearly six years after Hurricane Katrina destroyed homes in Louisiana, there are still unsettled lawsuits between insurance companies, lenders and municipalities there, Sharga said.

(© Copyright 2011 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.)

  • wood chopper

    Why would they have to have insurance? That makes all the sense but it is not fair. They will be the first ones to tell people to get out of their house but they will be the last to live with a code of ethics! And how many of these banks and lenders are there with there hand out right now asking for something they should not get!? I hope the residents get taken care of first and the banks never!

    • Monica

      I agree..

      • st paul

        You have to have insurance. You know? Like owning a car.
        Especially if something endangers another person – you are liable for their medical expense if it’s your property/car…

        covers your ass from greedy lawyers.

        • Shelly

          To St Paul, having car insurance is the law, having home insurance is NOT. I agree with you though.

          • I agree

            OK…having home insurance is not the law. And it is also not the law to look both ways before crossing the street either….but you would have to be a MORON to not do either.

            • Shelly


    • Leavealready

      I love how people are so angry at banks, earth to people they borrowed you money, you chose to borrow from them, is it their fault you bought to expensive of a home, or took a adjustable rate loan, or lost your job? Get another job, cancel your cable and internet do what you have to do, stop expecting some1 else to help you out, you dug your hole, lie in it!!!!!!!!!!!!!!!!!!!!!

      • Dave Seavy

        They LOANED you the money, Banks don’t borrow money, they lend it. Customers are the ones who do the borrowing. And yes, for people to be complaining about banks is silly. When you agree to terms of a loan, you have nobody to complain about except your own judgement.

      • Shelly

        Then why did the predatory lenders tell people they could afford the home. That’s why the depression almost happened in 2008. The baks lowered the credit score to 520, how can the people be at fault. The banks lied to the people. Watch the movie “Too Big to Fail on HBO'” it’s a perfect depiction of why people had to foreclose on their homes. They are BOTH at fault, but more of the bank’s.

        • T

          The reason, Shelly, is the Community Reinvestment Act cir 1977 requires all FDIC insured banks to lend to Low and moderate income individuals (520s). And a point of clarification, it is likely that most of these foreclosed homes are owned by HUD, GNMA or FNMA. The foreclosing bank is simply acting as agent and not leagally liable for homeowners insurance. Once again, you can blame our govenrment for creating the original problem and ithe aftermath.

          • R

            Get your information straight. A credit score has nothing to do with a person’s income. It focuses on how they manage their credit… or their money. A low-income individual who lives on a strict budget and manages his or her finances wisely could very well have a higher credit score than those who make tens of thousands more.

          • Katie

            Yes, they required them to lend to low and moderate income individuals. BUT, the banks did NOT have to lend more money than than the people could afford to pay back. Common sense is required, not just of people, but of businesses, too.

            • Good Ol Boy

              I got a home loan in 2007 that there was no way I should have gotten. But I toughed it out and am still there. Of course, getting a 60k per year raise by switching jobs didn’t hurt either. It’s a jungle out there, but she’s right, the banks were throwing houses at people. Income? No big deal. Credit score? Don’t need it. Write the loan FHA. We’re all doing it……….

      • Grow a Brain

        So ignorant. The hard part is, anyone with only half a brain may listen your logic.

        Your statement is equivacal to saying that drug dealers have no role or responsiblity in the epidemic that grips our nation’s streets. Yes, they didn’t force people to smoke crack or inject herion…but without them, the addicts wouldnt have to worry about it in the first place.

        The greedy banks ARE just as culpable in this national recession as is anyone…..without the banks and their greedy, predatory lending practices, these people couldnt have bought the homes in the first place. Everyone got greedy, espeically the banks.

        So yes…people need to accept responsiblity for their life….but to ignore the banks role in this crisis is just IGNORANT and STUPID. This recession wouldnt have been possible without them!!!!

        • S

          T is correct.
          Ignorant and stupid are very strong words, and in this case not correct. And FYI those comments are a reflection of how people (negatively) perceive you.

          The drug dealer comment is not a good correlation to banks, as lenders are necessary for the vast majority of home purchases especially low-income folks.
          You see, when a bank lends a person money to buy a house, they get a place to live, in exchange for payments over a period of time. A drug dealer takes your money, gives you drugs that make you sick.

          What role do you think the banks had in this crisis? In what way were they greedy? I will assume you mean greedy in a short-term quick & big gain sense.

          So I ask you, why would a bank enter into a 30yr loan with bad terms if they thought that loan was going to go bad? A bank does not want to foreclose on a house. Plain and simple. It is a loss for the bank. A loss of capital, a loss of a customer, a loss of reputation. How can banks be greedy if on net they will lose money? Even if the bank mistakenly thought the borrower could pay back these bad terms, a bank with staning in the community would not last very long with all the negative publicity of their poor products, and customers would leave causing profit loss.

          So you probably mean to say mortgage lenders instead of banks. The majority of problem loans came from non-us banks like Deutche Bank or those mortage lenders like Countrywide. But generally not the domestic banks.

          The problem is people took loans they did not understand or gambled that they might be able to afford the house. When enough of those gamblers lost, it put pressure on the rest of us and put the economy in recession. Now although there are plenty of studies showing the CRA and Clinton administration’s enforcement of the CRA had no direct correlation to the recession, there are an aweful lot of cooincidences like mortage securitization that are both part of the CRA and the recession. So many cooincidences that it is only a small, but synical leap to correlate them.

          • Joe

            Drugs or money, dangle either in someone’s face and a lot of people will take them regardless.

        • Shelly

          Thanks Grow a brain, you ARE correct, people just don’t get it!!!!

        • Leavealready

          I’m sorry i knew ARM’S were bad, you people bought a home under the premise it would constantly gain huge value and you could just keep trading up, do you realize how stupid that is now? Every house gaining value every year, yet they’re building new homes everyday also how can anyone think the market could sustain this, its your right to blame banks, and since you do i hope you never get another loan in your life.

          • Shelly

            Whatever. Leavealready, I do own two homes and they are paid for, and I will get a loan, so what’s your credit rating???? Forget it I know.

            • Leavealready

              Hmm I bought a foreclosure, cool saved me a bundle hence i didnt take an arm loan, you own nothing. Why would i defend banks all morning if i had bad credit, id be blaming them also, you’re quite sharp Shelly

              • Shelly

                Quite sharp too, Leave already. Some of the foreclose homes were nice. Hope you bought a good one!

          • Rob Bixby

            The issue here isn’t about the bad loans or anything, its about bank owned properties that the banks have been negligent in taking care of. They are the legal owners of the property, but instead of maintaining it and trying to sell it off and cut their losses, they choose to take a 100% loss on it and let the city/county/state clean up the mess.

            • Human Bean

              but they are not losing a thing!!! Banks buy insurance against you so when you fall behind they kick you out, get the house back collect from insurance the full loan value, bleed you dry the rest of your life , and turn around and the cycle begins again with another buyer. Letting a house sit empty is not a big deal to banks, and when the elements take the house down they surely don’t care about cleaning up the mess.

      • Borrow or LEND?

        No, Banks do not borrow me money. Banks LEND money. (I can’t STAND how many people get that wrong.) Off topic I know…

        • @Borrow or Lend

          Goes to show their mentality

  • st paul

    Whether or not they had insurance, the houses are only technically worth 10k. its the lot that is expensive. Problem solved. As the way I see it, the banks are taking low ball offers just to get rid of these forclosures. They all need major repairs/updates anyway…

    Bulldoze the houses, and to the people who want to clean up the filth of the neighborhood and actually make north a better place, buy the lot from the banks/owners, and expand their yards.

    • factdealer

      Theses lots have no value either, who wants to build a new house next to dozens of Sanford and son looking homes and people. I wouldn’t put a portable biffy on 1 of these lots

      • st paul

        No no … The land is what has the value (when broken down)…
        It’s not the house. I was just merely suggesting, to those who own homes, and actually care about their neighborhood – if it was to end up this way, bulldoze the house, and buy the lot for lot value. This would space out the area, increase your property size, and definitely clean up the ghetto!

      • Rob Bixby

        Wow, racist much?

        • Dave Seavy

          What has run-down houses and trashy surroundings got to to with race? I’m always amazed that somebody can take any comment whatsoever and make a racial issue out of it.

  • Sam I am

    How is it the banks fault if a person buys a house clearly they can’t afford. Owning a house is not a right. If you bought outside your ability to afford and the house is in foreclosure the money should go tot the bank first.

    And for those renting – renters insurance is what you are suppose to have. Do not expect the government to bail you out. I have renters insurance andi it costs $13.00 a month.

    • st paul

      This isn’t referring to those renting. Its talking about National banks… outside of the state. Bank owned inside the state, as the state law, REQUIRES insurance… but national banks outside of minnesota – don’t apply to minnesota state law.

      • Sam I am

        Thanks for the clarification.

      • Shelly

        Thanks for the clarification as well, but I do know it is not a requirement to have homeowners insurance, and people carried ARMS without insurance.

        • Dave Seavy

          You’re right when you say there is no law requiring insurance, but if you have a mortgage on it, the lender requires insurance. If you don’t provide them with a certificate of insurance, they will insure it and charge you for that. If they didn’t, the house could burn down and the mortgage holder would never recover their investment.

          • Thomas Keim

            very true if their is no insurance on these houses its the owners fault if fully paid or the lender if the house is mortaged plain and simple

        • S

          You cannot carry a mortgage without homeowners insurance. All mortgage contracts force you to carry the insurance. If you are not in compliance, they will “force-place” the insurance for you, and you will not get any discounts.

        • st paul

          The article added more information – but originally they were stating that banks, in the state, that own houses that were in foreclosure were required by state law to have insurance.

          But, on a national level, banks outside of minnesota didn’t fall into the minnesota state law (as they are not here).

          Thanks for the clarification on the “not being required to have homeowners insurance” btw… I didn’t know that, but I regardless, I wouldn’t be stupid enough to not have it! lol

        • Katie

          OMG! Those banks were VERY predatory. Every house I’ve ever bought with a loan was required by the bank to have homeowner’s insurance. I didn’t even realize that ALL banks don’t require it.

      • Thomas Keim

        my loan was through chase and they required insurance if it lapsed for one month they would put their own on it which was 2 time what you could get it for when they sold the mortage to hr block they also required it and also american mortage too i had to keep homeowners insurance on my house until they forclosed then they put their own on it for i was not required to have any on it none of them would refinance the mortage so i said shove it

      • Thomas Keim

        its the banks loss if the house and property is destroyed not the state or the tax payers and the loan officer or the bank president should be fired who would borrow money to anyone without any security and the underwriters would never approve any loans like this

    • Realist

      Keep in mind that predatory lenders were pushing ARM loans like crazy 5 or so years ago.

      • Shelly

        Thank you Realist!! You hit the nail right on the head

      • @realist

        Thats right realist, no need for personal accountability, blame it on the banks, I never fell for the ARM loan, if something sounds to good to be true, well you know the rest.

        • Shelly

          However many people fell for it, because the banks made it look good. It was because people did not do their research.

          • BankFairy

            Exactly! people fell for it, some of us didn’t , ok everyone that didn’t realize this was bad from a mile away, I forgive all your debt free and clear, plus heres another 100k to get you going.

            • Shelly

              And a boat to boot!!!

        • Realist

          So… let’s get this straight. You are OK with the banks pushing terrible loans onto consumers? The banks targeted consumers, mostly low-income minorities, that don’t understand the financial system too well by making those ARM loans sound like the greatest thing since individually-wrapped cheese slices. Those consumers were capable of affording the houses from the start, otherwise they wouldn’t have made it 2+ years before the music stopped and the houses were foreclosed. It was only after the banks jacked up the interest rates did many of these same consumers get pushed out of a house they could no longer afford. I’ve read countless stories of good, hardworking folks that saw their reasonable mortgage payments double or triple. I know it’s convenient to blame the consumers, but the banks aren’t innocent in this at all. This foreclosure mess was created by the banks… If the consumers truly couldn’t afford the houses they were buying, then the banks and their partners should have done a better job of vetting their finances. SO go ahead and foam and the mouth about personal accountability. You are ignorant, plain and simple.

          • S

            not banks, mortgage lenders. Most arms came from mortgage lenders, not banks.
            Consumers did not know what they were buying. They did not do any diligence on the biggest purchase of their lives. They figured the low rate of 4% would stay forever. It does not matter how good or hardwroking you are if you bet wrong on taking that kind of contract. They should have paid 6% and got a fixed rate, they may still be in their homes. When an ARM changes based on an index + margin, their payments went up. Since Americans have troubel with basic math is does not suprise me so many people got caught. But that is not the fault of the bank. The bank does not want a foreclosure because a bank loses money and customers for every foreclosuere.

            • Dave Seavy

              That’s a good point. The private mortgage lenders are the ones who went nuts with the ARM loans, and attractively marketed them as being the best thing since sliced bread. This is why it’s worth paying an attorney a couple of hundered to look over any mortgage agreement before you sign it. That 200 could save you many thousands of dollars.

          • @realist

            So you expected you could have an $800 a month payment on a 240khome paying only interest then sell the home and do it again, um when would you ever end up owning a home? Arm’s were basicly interest only loans if you were paying any debt down on the loan it was very little, so explain to me how you ever outright own 1 of these homes. Sorry i wasn’t so blinded by the housing explosion.

            • Realist

              I think you completely missed the point of my post. However, are you able to back up some of those figures with sources? Or are you making them up as you go along?

              • @realist

                I know a couple people who had arms that were $800 payments, that in some cases went up to $2200. The whole idea of arm’s was to put people in houses they thought they could live in cheaply then make money when they sold it and do it again and again. How does 1 ever own a home when they’re being told its value will always go up, so they can sell it for profit later, Yes banks told people that but sometimes you have to take a closer look at things b4 you dive in headfirst, it was obvious to me that it didn’t make sense.

                • Realist

                  “it was obvious to me that it didn’t make sense.”

                  What’s obvious to you isn’t obvious to everyone else. Do you understand that? Do you really feel that everyone feels and acts exactly like you do? We have approximately 3.5 million people in our metro area… not everyone thinks exactly alike.

                  It also gets pretty complicated when you have predatory lending practices in place and smiling mortgage representatives that insist that everything will be fine and that ARM is great. I’m not saying the consumers are completely off the hook. What I’m saying is they had “professionals” that were blowing smoke up their client’s rear ends.

            • Thomas Keim

              arm is only for short term and to be able to refinance at a later date a good loan officer will tell you that

    • Shelly

      Hello, the lowered the credit score to borrowers, and virtually told people they could afford the homes. They lower the score to 520 which is a bad credit score. The banks are at fault. I agree that renters insurance is inexpensive, but unfortunately people with low income are mixed up on their priorities.

      • R

        Why be prejudice towards low-income individuals? Perhaps it is those that waste money and use it unwisely. Low-income is NOT related to low-credit scores. Good grief.

    • Sam its easy

      @ Sam I am……easy answer to your first question.

      Because the banks are the ones loaning money…they have a fiduciary responsibility to do their due diligence when making a loan. If I make a 100k loan to a jobless crack head….is it really the crack head’s fault I didn’t get paid back.

      Everyone is talking about “people need to take responsibility”…and I AGREE…ON BOTH SIDES….these banks got greedy and made loans that no reasonable, logical person could honestly expect that these people would be able to re-pay. And the people got greedy and took the loans anyways because the bank said it would lend the money….figuring the bank wouldn’t loan it if they couldn’t afford it.

      Both sides are responsible…….especially the banks!!! Please wake up to reality people.

      • Shelly

        Thanks for agreeing with me!!

    • Rob Bixby

      The idea is that the bank is supposed to have insurance to protect the property in case of something like this, so the city isn’t left with the bill to demolish the house and make sure its safe. This has nothing to do with predatory lending or anything like that. That’s another issue. The issue is that the banks own hundreds of properties and don’t pay for the upkeep, insurance, or anything on them, and then just write them off as losses and let the government clean up their mess when they don’t pay the property taxes or insurance.

  • L

    it has nothing to do with who borrowed who, what the value is or isnt, if you lost your job and cant pay, whatever, its who owns the home, regardless, it needs to be insured, if it isnt insured dont come to my pocketbook expecting help. whether you are a bank or a mortgagee.

  • Pete1

    Here is an interesting story from that area. When I was looking to buy a house in 2009 (after all the loan problems had happened), I took the first time homebuyer’s class to learn what I needed to know. The class was held in North Minneapolis area. The class is a requisite for being eligible for low income grants. I didn’t qualify for those loans but wanted to learn what I should know before starting the process of looking at what I could afford, how to get a loan, types of loans, etc.

    WhAt class start, instructor asked for a show of hands as to where in the process the +50 class attendees were in the home buying process. Over 75% were already in closing proceedings and were only taking class because they found out last minute they had to have the class to get their low income grant money.

    Only one other person was at the point of just starting the home search process – which is what the class is geared for – educate you how to properly buy a house.

    Someone please explain to me how I should now feel sorry for those other 48 attendees if they ended up in foreclosure (or other’s who did not do any homework to educate themselves)? The class cost $50 – ask any realtor about it if you want to know what you don’t know – but should before you start the home buying process. I just took a little initiative to properly prepare myself for the biggest purchase someone will ever make. How could anyone do this without first learning as much as they can??

    • Shelly

      Probably slept during class. Still took the loan. So much for the American dream.

      • Realist

        I hope they slept in the class… It’s called the American dream because you have to be asleep to believe it.

  • taxed

    If the banks/mortgage/national lenders don’t have insurance, thats their own fault. The law just state banks/mortgage/national lenders are responsible for paying for any property taxes the counties/cities may have missed. The city of Minneapolis/Hennepin County should take a good look at any unpaid taxes on those forclosed homes/lots and put them up for sale.

  • zzz

    Actually, your headline for the article is incorrect.
    The tornado damage does not complicate the forclosure of the houses at all.
    If a house was going to be foreclosed before the tornato, it is going to be foreclosed after the tornado.

    Pretty simple. No complications from the tornado, as far as the homeowner is concerned. The homeowner is out of the house, tornado or not. So, no complications.

    • Shelly Michels

      We know that. Many of us are standing behind the people whose home has foreclosed, as for the lender who now own the home, I don’t give a rat’s behind whether or not the lenders get paid insurance. I am more worried about the responsible people who lost their homes to damage.

  • Julio

    Wow……this reminds me of the farmer vs. the bank. The farmer makes 40K,but the bank lends them 150K for a combine. The “poor farmer” looses everything. House ,land,farming equiptment, ect……Bad lending practices, poor financial decisions on the farmers end. Who win?

  • Freshly Squeezed

    Who cares them homes down there aren’t worth 10k,
    real nice place to live I here hahahahahahaha.

    • Jerr

      WHEE! You sound like your writing ability has been Freshly Squeezed out of you. Sheez!

  • Thomas Keim

    if the place had a mortage on it it was insured either by the owner or the institution that has the forclosure on it you cant go one month without insurance on the property the lender is trying to scam money out of the government if they didnt have insurance on the property its their loss and not the tax payers

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