Battered by Foreclosure Problems in Vallejo

June 5th, 2008 | Tags: Foreclosure Victims

Battered by foreclosure related problems Vallejo City in California, is facing bankruptcy. With ballooning foreclosures the revenue has been dropping at an alarming rate while the expenses of the council including payment of employees remained the same. This is the first city in the country to declare bankruptcy.

By filing Chapter 9 bankruptcy protection, Vallejo would be able to talk about negotiations again with its creditors. Councilwoman Stephanie Gomes said that with each passing day the situation was going from bad to worse – thanks to increasing foreclosures. No individual or a civic body wants to seek protection by declaring bankruptcy but there does not seem to be any other alternative.

Like the other cities in California, Vallejo city had promised those in its employment salaries together with benefits and retirement advantages. Generous labour contracts had been signed during sunny days of economic boom bemoans Marcia Fritz, the vice president of California Foundation for Fiscal Responsibility. Rising foreclosures have made a mockery of these promises. For the city authorities it is a nightmare because they have to continue with payments that were granted when extra funds were rollingin.

With the relentless forward march of foreclosures it seems more Californian cities will have to follow the path of Vallejo. The story is the same everywhere – dropping revenue from taxes, rising expenses in civic works. Foreclosures are having the last say.

Mark Levinson is a bankruptcy attorney seeing to the legal interests of Vallejo. He comments that other cities in California are similarly saddled with foreclosure related problems that have led to a drying up of city funds to meet essential expenses.

Vallejo is faced with a shortfall of $9 million in the budget for the fiscal year that closes in June according to Joseph Tanner the manager of the city. The drop of $5 million less than anticipated in revenue is because of drop in retail sales and fall in property prices coupled with economic meltdown. With more foreclosed house entering the shops the real estate market is crumbling with more supply than demand. Simultaneously civic costs are rising because of crime, health problems and arson – all connected with vacant foreclosed houses. Negotiations for reduction in payment with the employees are understandably at a point of deadlock. Even if some understanding is reached with creditors, the city will have to cut down on police patrol, repair of roads, funds for social security and related vital matters.