Making Crime Pay: A City’s Criminal Assault on Banks

Criminalizing petty infractions is a nice way for municipalities to extort money from citizens without dealing with the inconveniences of voting. Asking citizens for their consent to be taxed in a recession when many citizens are losing their jobs and homes would no doubt be futile. However, criminalizing behavior that might merely have been a civil regulatory infraction increases the collection rates for the fines – no one wants to go to prison or have a criminal record. Of course, criminalizing non-criminal behavior has consequences, often adverse consequences for communities, but nonetheless politicians think short-term because they will usually not be around to pick up the pieces of their poor policies.

A classic example is the town of Indio, California, which was written up in the Wall Street Journal for criminalizing the failure to maintain a residential property. Indio defends its recent criminalizing of home disrepair as an attempt to maintain property values. Indio requires all owners to maintain their property or be taken to court and fined criminally. An arrest warrant can issue for failure to appear in court because the infraction is a criminal rather than a civil one.

Many owners of property in Indio are absentee banks owning foreclosed homes that they otherwise might not maintain. That is the bank’s economic decision – just like an individual’s decision. There may be individuals who for one reason or another choose not to put money into their home to maintain its appearance. Rather than living with the state’s view of aesthetics, a homeowner may revel in a wild garden rather than an orderly one, or an unpainted picket fence, or a yard with wildflowers that the city calls weeds. Indio, however, enjoys shaking down banks that own foreclosed homes because it is a source of immediate revenue.

Sometimes the banks may pay a local landscaper or real estate agent to tend to the garden. There is little choice today because failure to maintain the home’s appearance will result in criminal fines; failure to pay those fines could mean jail time for some bank officer. Usually, criminal intent is necessary to prove a crime, but does a bank officer in a jury trial want to appear in front of local citizens (some of whom may have lost their homes to the bank) on the question of whether he or she intended to not maintain the appearance of the home.

Indio defends its policy on the theory that requiring property to be maintained will enhance the property values of the neighboring properties. Accordingly, pressuring banks to fix up a foreclosed home is supposed to prevent declines in property values, except when just the opposite happens. Because the banks know that they face the risk of criminal charges with respect to those homes, they have an incentive to sell them quickly even at fire-sale prices. Why hold the property and be coerced into paying fines or maintenance charges? Therefore, dump the property. It may crash the market price, but what did the city fathers expect from such wrong-headed policies?