One can imagine two contending explanations. The first is that the whole lending process became too complicated. A bunch of hubristic whiz kids thought they could eliminate risk through algorithms rather than traditional tools like underwriting and requiring down payments. This involved creating a complicated ownership structure for packaged loans – so no one would be exposed to excessive risk – that is hard to unravel. For these inner city properties, where the homeowners have the least to lose by walking away and the economics of rehabilitation and resale are the toughest, this leads to homes where not only the owner but the very project of foreclosure, rehabilitation and resale is underwater. At some point, it is literally in no one’s interest to reclaim the house and it is razed.
My guess is that there is some truth in this, but it is a second order explanation. How did it happen in the first place?
Here’s a possible answer. We don’t need concepts like the living dead to explain this. Indeed, there is a sense in which the metaphor is exactly wrong. The problem is not that these properties refuse to die but that there are truly and completely dead, yet maintained on life support. They are victims of the fiction that they still belong to the people that bought them. Legally, they do. Economically, they don’t and may never have.