City of Vallejo Declares Bankruptcy - and some of the nation’s highest rates of negative equity
By: Amy Bohutinsky, Zillow VP of Communications | May 8, 2008
The New York Times today has an article on the city of Vallejo, CA declaring bankruptcy. In what the Times calls “a potentially ominous harbinger” for other California cities, the City Council of this northeast suburb of San Francisco voted unanimously, citing no other choice due to dwindling tax revenues and a depressed housing market.
Our Q1 08 Quarterly Home Value Report for Vallejo shows a pretty bleak picture for homeowners. Home values are down 24% year-over-year, and 91% of Vallejo homeowners who bought in 2006 are now in a negative equity situation - owing more than their home is worth. It doesn’t help that the median down-payment in 2006 in Vallejo was 0% — a classic situation where recent homebuyers overextended themselves when they bought during the boom (in contrast, the median down-payment nationwide was 10% in 2006). The graph below shows the exact correlation between a dropping median home value (Zindex), zero down-payments and now widespread negative equity situations for homeowners.
It’s not clear to me what exactly happens when a city declares bankruptcy and how this affects its citizens. The Vallejo Times Herald quotes a city official as saying that they will continue providing city services and the move will allow them to restructure their finances. Meanwhile, it’s a fair bet that other cities facing housing woes and rising rates of foreclosure will be watching what happens closely.
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Comments
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Alexis S Rosales on May 24, 2008 1:06 am
Hey there, I’m a UC Irvine student from Vallejo. I’m also following the bankruptcy in Vallejo, since it is where my home is.
Here are the filed papers, maybe this will
help.http://cdn.sfgate.com/chronicle/acrobat/2008/05/23/application.pdf
I found them online at SF Chronicle,
I read the NY Times article and it seems a bit misleading. They make it seem as though the reason Vallejo filed for bankruptcy is in part due the “housing market meltdown”
NY Times states, “What worries some experts is that some of the problems here are all too common, a steep decrease in property and sales taxes and transfer fees as a result of weakness in the housing market.”
But in the filed papers, Vallejo states that they filed for bankruptcy due to the demands of the labor unions.
Real Estate Depreciation -- the Lowest of Lows in the U.S. | Zillow® Blog on May 27, 2008 12:41 pm
[...] Vegas is the first non-California MSA that makes this depressing list. To add insult to injury, Vallejo, CA recently declared bankruptcy due to falling tax revenues, rising payroll expenses, and a bad housing market. As a matter of [...]
Los Angeles Bankruptcy Attorneys on May 14, 2009 1:38 pm
It is unfortunate, but we wil see many more muncipalities claim bankruptcy soon. Consumers can get help at http://www.bankruptcysafe.com for free.
California Bankruptcy Attorneys on May 14, 2009 1:39 pm
Only time will tell what is going to happen to our nation and the trillions in debt we have incurred.
Bankruptcy debt settlement on October 2, 2009 1:33 am
Yes, time will tell. Just hope they manage to turn things around in time. And the debt will continue to rise.
Cheers