REAL ESTATE: San Bernardino bankruptcy linked to foreclosure

The city of San Bernardino’s financial woes are directly correlated to a torrent of foreclosures in Inland Southern California, the national foreclosure tracking firm RealtyTrac said Thursday.

“Property taxes plunged in San Bernardino because of an avalanche of foreclosure activity during the recent housing bust,’’ said RealtyTrac vice president Daren Blomquist.

The city in May and June had the third highest California city foreclosure rate among cities with a population of 200,000 or more.

When houses are in foreclosure, homeowners frequently stop paying the mortgage, and their property taxes, Blomquist said, creating a fiscal problem for local governments which derive most of their revenue from retail sales and property taxes.

With property values capped at 1 percent of the home value, Blomquist said property tax revenue for cities has fallen dramatically and put a strain on local budgets in hard-hit inland areas of California, as opposed to the coastal communities of California where prices are higher and homes retained their value.

That’s why we are seeing inland cities like San Bernardino filing for Chapter 9 bankruptcy protection, he said.

Paul Herrera, a spokesman for the Inland Valleys Association of Realtors, said there’s no doubt cities have felt the squeeze from falling property tax revenues since the housing crisis began, but it’s likely many factors contributed to a bankruptcy filing.

“The Inland areas will see stable property tax revenues coming in for the first time in several years,’’ Herrera said. “Losing 40 to 60 percent of the median home price doesn’t help, but many others have been able to plan and budget accordingly.”

In San Bernardino County, officials reported the first increase in property values since 2008. The 2012 assessment roll rose 0.8 percent from 2011 to $162.68 billion. Yet, the city of San Bernardino wrote in a July 9 budget analysis that the decline in taxable sales and property values has resulted in revenue losses of $10 million to $16 million annually since the city’s peak in 2008. At that time, the city’s general fund revenue was $133 million.

But Standard & Poor’s Ratings Services lowered the city’s rating on lease revenue refunding bonds by three levels to “CC” from “BBB+” and placed San Bernardino on CreditWatch with negative implications. An S&P analyst said the rating change followed the city’s Chapter 9 filing and the credit watch stems from the firm’s belief that San Bernardino is deemed to have insufficient liquidity and may not be able to meet its bond payment obligations in the next three months. Chapman University economist Esmael Adibi said property tax collection isn’t the only revenue a city banks on to stay afloat. “The key factor hurting almost every city is the sales tax problem,’’ he said. “Consumer spending dropped significantly as a result of the higher unemployment rate; that reduced sales tax revenues to cities.” RealtyTrac’s most recent metropolitan-area rankings for June shows the Inland’s two-county metro area of Riverside and San Bernardino ranked No. 3 in the nation for foreclosure activity, with 8,477 filings or one in every 177 housing units receiving a filing.

The county of San Bernardino, with 3,657 filings affecting one in every 191 households, has one of the nation’s highest foreclosure rates.

The city of San Bernardino, itself, had 2,527 properties in some state of foreclosure or in bank-owned status in June, representing 3.5 percent of all housing units, RealtyTrac statistics show. That is more than three times the national average of 1.02 percent, and is also well above the California state average of 1.9 percent of all housing units, the online foreclosure marketer said.

Source: http://www.pe.com/business/business-headlines/20120712-real-estate-san-bernardino-bankruptcy-linked-to-foreclosure.ece