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Is It Wrong to Buy a Foreclosed Home?

An opponent of Jon Grant is making hay of his house, but experts say there’s nothing amoral about buying from a bank.

Last week, King County Labor Council Executive Secretary-Treasurer Nicole Grant issued an epic screed against Jon Grant, who is running for City Council position 8 under the Democratic Socialist banner.

Casey Jaywork has a fine breakdown of the spat between the two unrelated Grants. But one of Nicole Grant’s charges against Jon Grant seemed to deserve a bit more scrutiny, especially if it comes up again in the hotly contested council race to replace Tim Burgess. Among her litany of complaints against the candidate is the fact that he purchased a foreclosed home with his parents’ money.

“Jon Grant is a hypocrite who is running on housing affordability while he bought a South Seattle foreclosure putting an immigrant widow out of her house … with his dad’s money. That’s not socialism,” Nicole Grant wrote.

Putting aside the socialism and dad’s money part for a moment, is there any validity to the idea that people who buy foreclosed properties are complicit in the former owners losing their home? Or, short of that, is Jon Grant immorally benefiting from a crooked system? Several real estate experts say: Of course not.

When a house is foreclosed upon, it becomes the property of the bank, which then turns around and sells it. While it’s irrefutable that a lot of human suffering exists in these situations, real estate experts fail to see how the buyer of the foreclosure is responsible for any of it.

“If the bank’s going to sell, they’re going to sell. It’s that simple. They’re going to sell it,” says James Young, research director at the Runstad Center for Real Estate Studies at the University of Washington. “Whoever buys it, buys it. It doesn’t matter, because the bank owns it.”

While gracious enough to field the question, Young seemed a bit impatient with the very idea that there’s a moral or ethical dynamic to buying property from banks. “I’m an economist, I’m not going to worry about this. The bank’s going to sell it. Somebody’s going to buy it.”

Sol Villarreal, a real estate agent who doubles as a savvy observer of Seattle politics, agrees that there’s not much of a case to be made that Jon Grant is implicated in the immigrant widow losing her house. “Jon Grant didn’t steal someone’s house from them. The bank took it, and Jon Grant purchased it.”

Of course, both these guys are in real estate. Would an ethicist agree with their assessment? As it happens, The Ethicist at the New York Times weighed in on the question back in 2011. By her reasoning, there’s actually an ethical argument for buying a foreclosed house, especially if your intent is to live in it (as opposed to just flipping it). She writes:

As William C. Wheaton, a professor of economics and real estate at the Massachusetts Institute of Technology, explains: “If a large block of people refuse to buy the houses, the bank can still foreclose and sell them—to investors, who will turn around and rent them. Investors, we can assume, don’t quite have the same moral anguish that individuals do.”

By declining to buy a foreclosed house, you cannot help the traumatized former owners. But by making the opposite choice, you can do a lot to help their neighbors.

Bank-owned properties make up a small portion of the Seattle real estate market. According to Zillow, there are only seven bank-owned properties on the market in Seattle right now. That’s compared to 842 listed by an agent. Another 85 homes are listed as foreclosed upon, but not listed for sale.

Villarreal says there are a lot of issues people have with buying foreclosed homes, but they are practical, not emotional. The homes are typically in worse shape than average, which drives the price down but makes for more fixing up. As KUOW reported a few years ago, some experts see bank-owned property as an underused source of affordable housing in Seattle and elsewhere.

“People who are going for foreclosed houses and short sales are looking for good deals and looking to do a little more work,” he says.

As for whether buying a foreclosed home is or isn’t socialism, that’s a trickier question, in part because there’s no single definition of what “socialism” is. You could argue that by doing business with a bank, you’re playing a part in their capitalist game. But then again, so is everyone who uses an ATM.

Responding to Nicole Grant’s statement on Wednesday, Socialist Alternative Councilmember Kshama Sawant didn’t address the house issue directly. But she said such personal attacks distract from the issue at hand.

“The majority of working people are fed up with personal attacks that all too often substitute for genuine debate,” Sawant wrote.

dperson@seattleweekly.com

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