Time To Walk Away?

(Narrator's voice):  Let me tell you a story...

A well-meaning family of modest means buys a house in a Midwestern city about seven years ago. It's in a less-than-nice neighborhood, let us say politely.  But, it once was lovely and stable(before WWII blew the culture up), and showed real promise of coming back. After all, the banks were lending, and if enough urban homesteader types like these folks were to show up, people with classic middle-class values, they might create a momentum and bring the place back. The bank owned it, and were glad to have it as a paying asset. The family went through a pretty stringent qualification, if memory serves. It was not a 'liar loan', at least not from the family's point of view.

The well-meaning family moved in, happily. And steadily brought the big old house back to life, but refied along the way to cover the costs of major roof repairs, installation of a central climate control system, and some structural work that needed doing. They also bought  a little frame house around the corner, renovated it, and the eldest son lived there until he married and moved away. It's a rental now.

These folks tried, as imperfect as they were. Really worked at both improving their own lot and the lives around them. One family member still runs a Saturday version of 'Sunday School', to see if some improvement can be made in a few lives, to open the door to the outside world to a few kids, many of whom have never seen much of the rest of the city.

The neighborhood did not 'come back'. The drug trade is more embedded than ever, with its handmaiden prostitution in open practice on the streets.  It's as if the city administration has nearly abandoned these blocks, as the streets deteriorate, police coverage seems scarce. I've urged that someone get a carry permit, and carry, just for safety's sake. Falling on deaf ears, of course.

Because of the refi, done at the height of The Bubble, they owe about 90k on the house. Not much equity. $1200 payments, probably including taxes and insurance, faithfully paid each and every month.  A look at their zip code on Google Real Estate shows them as a tiny island of solvency in a sea of foreclosures. Abandoned industrial property nearby not likely to ever reopen. Empty CRE not likely to be occupied anytime soon. Lots of boarded-up houses all around them.

[end of narration...]

Is it time to walk away?  No villains here.  Everyone, bank and family, gave it their best shot. How do they get out without being hounded by the bank, and having to file a BK? It's becoming a matter of physical safety now. In the end, better bankrupt than suffering a gunshot wound. But that's a really low-class set of choices to make.

OS thinks the best solution is:  The owners hand the bank the keys, the bank hands the deed to the city, the city razes the house, and zones the lot 'commercial'. Maybe, in 2020, the economic tide has turned, and the area does come back. It's a corner lot, maybe a place for a green-grocer to located.  Easier to sell it if it's an empty lot.

At least that way, the city doesn't have a crack house on their hands.

This blog gets some visitors who know about these things.  Any ideas?