So I found out recently what happens when developments fail. My neighborhood's developer went belly up and only posted about 50% of the necessary amount of money to finish the paving in bonds.
Must be widespread in Durham as City Council has passed a measure where they are going to help out with ~10% of the shortfall and assess lien on all houses in the neighborhood for the difference spread evenly by the # of lots.
So the irony is that Durham City Council also passed a measure saying that from now on, all developers have to post bonds in the amount of 100% of the inflation adjusted cost to finish development.
Well I will be the first to admit (other HOA members don't agree with me) that it is OUR fault. Every single homeowner in my neighborhood could have investigated the developer and found out they only posted 50% the necessary funds to finish the development and investigated their financial health and after doing so, determine if it is a risk he/she is willing to take of the development failing. I accept responsibility for this. Hell, I thought I was doing pretty good as a first time homebuyer given I read 95%+ of the documentation at closing on my house (I'd bet the average in the US is 10% or less (see below)...basically just the words around the circled signature lines).
The reason our property tax doesn't cover projects like this is the streets haven't be 'turned over' to the city so they technically don't own or are responsible for the streets yet. Again, something I didn't know or understand in 2008 when we had the house built. But if I ever buy new property again, I'll be better educated I suppose.
So it can be argued to be partly Durham's fault because they wanted developers to develop as fast as possible to bring new homeowners to the area and grow the city both in population and finances. So in doing so they allowed developers to post very little in bonds to urge them to come to Durham and build neighborhoods as fast as possible. Early on, it paid off since the developers finished fast, got homeowners in the houses (ie taxpayers to Durham....that's all we are in their eyes) because mortgages were flying off the shelves, Durham got increased tax revenue, and the developers finished the projects after cashing out the bonds plus more out of their pockets (since they had money in their pockets at the time) and moved on to the next neighborhood. Then when things hit the fan and developers went under, and there isn't enough money to complete the projects. Ideally you'd think Durham would accept their poorly calculated risks and use this extra tax revenue they've taken in to help pay. But during this time, they overextended themselves in other ways meaning that extra money isn't just laying around.
I feel like a hypocrite though. I am of the opinion that this recession is 100% purely the fault of the consumer. I don't fault the banks or wall street or government at all. In the end, it was ultimately the decision of the consumer to sign a mortgage with terrible terms (that they didn't read, go figure), or to use a credit card with a credit limit that would put their debt to income ratio at 60% or higher if they maxed it out (oh yes....they did), or in this case, to buy a new property by a developer who had less than 50% equity (inflation adjusted) in the project that represented a completed 'development'.
Oh well, worst case it'd be $900 or so and they'll let you pay it off over 8 years at prime + 4.5% with a ceiling of 9%, but I'd just pay it off when it's assessed. I guess given I bought the house in 2008, I saved a LOT more than $900 on the house
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. I think everyone had a hand in the recession and if the consumers were the ones frauding the banks, I'd agree. However, the banks frauded the system with their creatively packaged loans, building unsustainable pyramids, and not even knowing what they were doing. The hedge funds were making money by buying insurance betting that the "packages" would fail
