From a link at the foreclosures site, we see an interesting story on another town that thinks it owns the residences’ properties. I hear endless stories about towns in the Chicago area that wanted to “do something” about rising housing costs. My business partner lives in a lower class versus upper class community called Evanston, Illinois that very recently wanted to pass legislation to mandate cheap housing.

But now it seems that the housing bubble burst is leaving towns changing their minds. Instead of forcing housing developers to make cheapers, some towns are now forcing housing developers to make no houses. Both sides of the city debate show what government can do to the market when they want to.

Private property is just that — private. The owner should have a wide berth of what they can do with that property, and in my opinion they should have absolutely no limits as long as they don’t trespass or pollute on their neighbors. Yet cities believe they own your land — and they’ll tell you what to do with it.

If developers want to keep building in your area, it may leave an increase in supply, bringing down housing prices. Homeowners cry foul, as if the current value of their home has any reflection on their short-term financial future. It does limit how much equity they can extract to take another cruise vacation, but you made the decision to live near open fields — and someone who owns those fields should be free to make the decision to develop them.

The housing bubble will leave us with a myriad of conflicting laws and regulations. You might have towns that mandate low-income housing, but then mandate building no housing at all. How can developers survive if they can’t develop? Even worse, some towns have taken out million dollar bond issues in hopes of paying off the new super-school, while watching residents flock out of the town because of higher taxes and living expenses (due to the bond issue!).

Rather than asking cities to make up their mind about what they want, maybe we need to demand that cities back off from our properties and leave home owners to make the decision on what they do with their land. Here’s a hint: if you don’t want your neighbors “messing up” your property values, own enough property that you don’t have neighbors. Problem solved.

Discuss this at the housing bubble forum.

Let us say that I loaned you a few hundred thousand dollars so you can buy a home, even if you can’t really afford the payments. Fast forward a few years — you start fighting with your spouse because your financial problems have caught up with you, you ignore your kids because both spouses have to work, you hate your life because it is all work and no play, you ignore your faith community financially because they don’t take plastic, you try to sell expensive items but they’re not worth 30% of what you paid for them, and you don’t see an end in sight. So you do what every other good American does — you let me take “your” house back, the house that I actually own 90-100% of.

I’m your bank. I know where you live. I know where you work. I know what you buy and how much you spend every month because your credit report is available to me. You can’t run — or can you?

For many homeowners, foreclosure is happening, right now. They have no option — there’s no more money to be had. The housing bubble has deflated enough that refinancing isn’t an option because they are so upside down on their loan. Many are saddened, but the one positive in all this mess is that the bank will be the one with the bigger mess — or so the home owner thinks.

Many home owners are leaving the keys to their previous house at the bank and walking away. Being upside down is terrible, bankruptcy is bad, foreclosure is awful, but at least they’re out of that mess of a house that was so beautiful and clean and sparkling when they moved in. When they move their last possession out and lock the door for the last time, they figure it is over. The bank will sell the house at a loss and move on, right?

Wrong. The banks have a nice little weapon in their arsenal, one that many homeowners will learn about a few weeks or months after the final foreclosure occurs. That weapon? The 1099-C, or the Cancellation of Debt. If you financed your $250,000 house for $200,000 and tacked on another $150,000 in refinance cash-out when your house seemed to be worth $450,000 all-of-a-sudden, you may have walked away owning the bank $350,000 on a home that is worth only $300,000. While the house still appreciated $50,000 during the bubble growth and bust, you’re upside down $50,000 because of those wild vacations, big pools, gorgeous bathrooms, kitchen upgrades and BMWs you bought with that free money. So you figure the bank will sell the house off and eat $50,000 — which is true, except that you may end up with a 1099-C for $50,000 in the mail for this year’s tax bill. That $50,000 1099-C is an additional $50,000 in income — the bank gave you a nice $50,000 gift, and the taxman will come looking for their share.

So what happens now? Can you walk away from the taxman as easily as you walked away from the debt you signed your name on? It depends on many factors. Nonetheless, this is one area your parents should have warned you about — don’t borrow more than you can afford to pay off quickly.

Discuss this article at the housing bubble forum.