States Diverting Foreclosure Settlement Funds Negatively Affect Future Budgets

Washington, D.C. – Many states are facing serious budget shortfalls for a variety of reasons which include contracts with public employees and decreased tax revenue. And in their effort to bridge those gaps state officials have decided to divert funds from the national foreclosure settlement into their coffers, but this temporary fix could have negative impacts in the future.

The purpose of the $25 billion foreclosure settlement was to give much needed relief to troubled homeowners, either by awarding them funds to hire foreclosure attorneys, or paying for counseling services with the intention of preventing foreclosure.

Each state received their share of the settlement based on how they were impacted by foreclosure, but some of those states, like Arizona, which was hit hardest by the housing crisis, California, Missouri and Louisiana have used the loose language of the settlement to divert the funds into their budgets. But this temporary fix could negatively affect their future budgets.

Foreclosures affect everyone.  When a bank seizes a home it decreases the value of homes in adjacent areas. Lower home prices affects the amount of property and sales taxes cities and states are able to collect. Property taxes, used to fund schools, are growing at a much slower rate than before the housing crisis hit.

A recent study by the Department of Housing and Urban Development found that with the aid of a foreclosure attorney or a housing counselor, 69 percent of troubled homeowners were able to modify their loans and 84 percent were allowed to keep their homes.

In the past, economic recovery has been powered by the real-estate market. By diverting these settlement funds states may be solving a problem temporarily but in the long run they are jeopardizing the amount of revenue they can collect in the future.

Preventing foreclosure is possible, especially with the assistance of an accomplished foreclosure attorney, and is beneficial not only to the homeowner, but also for businesses and states.