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No Sale: Bank Wrecks New Houses

http://online.wsj.com/article/SB124148169574985359.html

A Texas bank is about done demolishing 16 new and partially built houses acquired in Southern California through foreclosure, figuring it was better to knock them down than to try selling them in the depressed housing market.

Guaranty Bank of Austin is wrecking the structures to provide a "safe environment" for neighbors of the abandoned housing tract in Victorville, a high-desert city about 85 miles northeast of Los Angeles, a bank spokesman said.

Victorville city officials said the bank told them the cost of finishing the development would exceed what they could sell the homes for.

The bank also faced escalating city fines as vandals and squatters took over the sprawling housing project, leaving behind graffiti and drug paraphernalia, city officials said.

Guaranty Bank of Austin, Texas, is demolishing 16 houses at a housing development that it acquired through a foreclosure action. The bank figured it was more cost effective to wreck the houses than try to finish and sell them. WSJ's Michael Corkery reports.
."It's unfortunate," said George Duran, the city's code-enforcement manager. "We would have hoped for these houses to be finished. But it's up to the owner to see what is best for them."

Home prices in San Bernardino County, where Victorville is located, have fallen 60% from the housing peak in 2006, according to DataQuick, a research firm. The median new-home price in Victorville is $265,990, according to Hanley Wood Market Intelligence, a housing-research firm. Homes in the Victorville development were priced at a range of $280,00 to $350,000 in early 2008, according to Hanley Wood.

Demolishing vacant houses in economically troubled, inner-city neighborhoods is common. But the demolitions in Victorville show how the housing market is weighing on lenders even in once-booming suburbs. The houses were built by a California developer less than two years ago, according to city records.

Guaranty Bank has significant exposure to construction loans to home builders. Last month, its parent company, Guaranty Financial Group, was issued a "cease and desist" order by the federal Office of Thrift Supervision, citing the firm's "unsafe and unsound banking practices."

Many lenders, like Guaranty, have been foreclosing on home builders whose projects have gone bust. Regulators told Guaranty to come up with a plan to dispose of its foreclosed properties. But finding buyers is difficult, as home values remain under pressure.

Guaranty spokesman John Wessman said only four of the 16 structures slated for demolition were "substantially complete," while the others were less than half finished and "exposed to the elements." Guaranty obtained the property through foreclosure in December 2008. The builder, Matthews Homes, couldn't be reached.

A Guaranty official based in California told the Victorville newspaper, the Daily Press, that it would cost more than $1 million to finish developing the property so it could be occupied. Mr. Wessman said that official wasn't authorized to speak to reporters. He said he didn't know how much it would cost to finish the job.

A demolition job of this size would likely cost more than $100,000, according to a person familiar with the matter. A video of the houses being knocked down was posted on YouTube by the founder of a Web site called Vision Victory Manifesto, which has been warning of economic disaster. He declined to give his full name for this story.

Many of the appliances had been stripped out of the houses, according to the demolition company. "I was a little surprised they couldn't come up with an alternative" to demolition, said Ron Willemsen, president of Intravaia Rock & Sand Inc. of Montclair, Calif., which did the demolition.

Mr. Willemsen said he would grind up much of the wood into mulch for landscaping, while some of the lumber would be sent to Mexico for construction there.

Write to Michael Corkery at [e-mail]