A 6-1 vote by the city council of Stockton, Calif., Tuesday has cleared the way for the city to file for Chapter 9 bankruptcy protection as early as today. That would make it the largest city in the nation to ever do so. Given the city’s recent history of foreclosures alone, is anyone really surprised by this outcome?
The fact that city officials are finding themselves in this position — in debt to bondholders, labor organizations and retiree groups — is not really earth shattering. In fact, financial analysts and market watchers on the sidelines have seen it go from a city committed to the building frenzy of an-out-of-control real estate bubble, to a city that became a poster child for the nation’s foreclosure woes over the past few years.
According to RealtyTrac, the crisis really took hold there in 2009. Back then Stockton reported the fifth highest foreclosure rate among the largest metropolitan areas in the country with more than 200,000 residents — one in every 12 housing units had a foreclosure filing. Things got a little better in 2010, when the city ranked seventh highest in the nation at a rate of one in 14 housing units, but then took a turn for the worse in 2011 when it ranked second highest metro foreclosure rate in the nation, although the rate actually went down to one in every 18 housing units for the year as a whole.
So far in 2012, Stockton hit #1 status in January with one in every 140 housing units reporting a foreclosure filing for the month, and again in April, when one in every 213 housing units had a foreclosure filing. In May, the city’s foreclosure rate fell to fifth highest at one in every 195 housing units with a foreclosure filing.
For the first quarter of 2012, distressed properties accounted for 61 percent of all real estate sales in Stockton, split roughly 50/50 between short sales and bank-owned properties (REOs). The average sales price for a distressed property was $154,868, only a 7 percent discount from the average non-distressed real estate sales price.
The last California city to file Chapter 9 bankruptcy was nearby Vallejo back in 2008, but it may not be the last U.S. city to do so, according to CBS News.
I’m interested to know if you think city officials in Stockton are doing the right thing? Did they take too long to take action until their hand was forced?
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