Buying foreclosed houses is a good thing

Victor Joecks

There’s a story out today about how Sen. Dean Heller’s campaign is attacking Rep. Shelley Berkley’s husband for … buying and selling foreclosured homes and trying to make a profit.

Rep. Shelley Berkley’s husband has been investing in Las Vegas troubled homes, renting out some but selling two this year for $86,000 profit, according to research circulated this week by Republicans seeking to dent her U.S. Senate candidacy.

Republicans charge the transactions show Dr. Larry Lehrner to be opportunistic in the search of profits in the midst of Nevada’s foreclosure crisis, at a time when Berkley has been highly critical of banks forcing constituents out of their homes.

“How many members of Congress do you think find it a good idea to be flipping foreclosed homes right now? One?” said Mike Slanker, campaign adviser to Sen. Dean Heller, R-Nev., Berkley’s election target.

Well, I’ll be the first to admit that I’m not a member of Congress, but it is a great time to flip foreclosed homes. The best part about individuals buying and improving foreclosed homes is that it can be a win-win-win-win-win.

First, the original seller, in this case, the bank, wins, because they’ve freely chosen to exchange a property for cash.

Second, the new buyer wins, because they’ve purchased a home.

Third, the neighborhood where the foreclosed house is located wins, because instead of a foreclosure, there’s a renovated house. That increases the value of the homes in the neighborhood.

Fourth, homeowners in the general-Vegas area win, because as a basic understanding of supply and demand demonstrates, the more people wanting to buy houses in Las Vegas, the more those houses will be worth.

Fifth, the original buyer and “house flipper” wins – if he or she is able to sell the house at a profit. It should be noted that this individual is actually the one who takes the greatest financial risk, because there’s no guarantee that they’ll be able to sell the house for more than they’ve invested.

This process is what Las Vegas needs more of. Aside from being obviously unconstitutional, the biggest problem with the foreclosure mediation program is that it prevents this process from working.

The bank can’t sell, because it has to mediate. The new buyer isn’t able to buy a home, because it’s not available. The neighborhood suffers, because there’s a foreclosed home in it. Overall, home values stay depressed, because the above win-win-win-win-win process isn’t allowed to clear out excessive inventory, which is necessary for prices to start rising. The investor is denied an opportunity to make a profit.

All of these people are harmed in order to subsidize the individual who caused this problem – the “homeowner” who couldn’t or wouldn’t make his or her mortgage payments. (I put “homeowner” in quotes, because if they really were a homeowner, foreclosure wouldn’t be a problem.)

Now, on a personal level, I sympathize with someone who can’t make their house payment and how stressful/horrible that is for them and their family. But personal feelings of sympathy are not a justification to use government action to financially harm other homeowners, future homeowners, investors or even lending institutions. (This is the general problem with liberalism – in seeking to help someone, the unintended consequences of liberal actions make things worse for many others and often incentivize the behavior that’s causing the original problem.)

Later in the article Berkley’s spokeswoman claims the congresswoman is “second to none” in pursuing mortgage relief for “homeowners.”

It’s ironic and unfortunate that Berkley doesn’t follow the example of her husband, because individuals buying and flipping homes will do more to improve the plight of all homeowners than the increasing governmental interference for which Berkley advocates.