The sub-prime crisis that hit the US over the last couple of years or so has not affected just residential neighborhoods. There are many instances of even commercial spaces and downtown offices (considered commercial investment property) that are affected. The problem stems from failure to pay property taxes and this is an issue that threatens revitalization efforts of cities even as public service budget have of local governments have registered steep falls.
There is a kind of irony in the situation when you see that office and commercial space lies vacant even as new constructions come up. This is causing economists to warn of foreclosures that seem imminent. The situation becomes more complex as it may be easier for building owners to go in for foreclosures rather than pay property taxes on buildings that stand empty. This is a sign of over capacity. Experts had been warning of this situation long before the mortgage and the financial crisis broke the back of the property markets.
Initially individuals moved out to stay in suburbia. Now businesses seem to be following suit. Local tax incentives are also alluring businesses to areas that are strictly outside the main urban preserves. This is an unfortunate development for many small scale businesses that exist in the main urban areas. Incidentally, as workers have already shifted to the suburbs, it makes sense for businesses to also set up shop there.
Commercial property mortgages are not the same as that of residential properties. On such mortgages, payments are made on the interest mostly with less going towards the principal. The whole loan gets due in around ten years or so. In today’s market refinancing is not always an option that leads to problems. In the absence of refinancing, foreclosure may be the only recourse. The problem is compounded by the fact that when such mortgages are held by regional and community banks, they cannot manage the debt with each foreclosure.
State and city officials are looking at ways and means to tackle the problem. Sometimes borrowers may need payment alternatives to help them tide over the circumstance. In some other cases tax money may also be apportioned to these beneficiaries. However, leaving the matter to politicians may not always be the best solution as it could need the passing of legislation which needs time.