1. I don't see the point in not returning items lost in region abuse. The people that stole them anyways would be banned, so it's not like there would be two "copies" or dupes of the items in the system.
2. My final, and probably most concerning point, is that region abuse is NOT hardcore. There is nothing "hardcore" about getting screwed by someone in your own town region and losing all of your stuff. Sure, you can say "Oh, just get LWCs because it's too much of a hassle to return things," but that discounts all of the goddamn effort people put into collecting items over prolonged periods of time.
Items need to be returned. I just don't see why not.
I added the numbers
1. Because if the person who stole them is banned
after hiding the items, it would be an easy way to duplicate countless items. More importantly, there is no sure-fire way to track an item once taken from a chest, so staff could never be 100% sure that the items were destroyed.
Consider this: I get my friend to join Herocraft and my town, he steals everything and hides it for me, or we use a method involving a third party. Upon his ban, items are rolled back except now my town is back to normal and I have lots of free stuff, which as a clever player I never get caught with. Perhaps my town even put me up to it, so that we could duplicate our Endstone or whatever.
2. This is EXACTLY hardcore. Hardcore = "you got screwed over, just like you can be IRL? wow that sucks, no free items for you!" I see your point that the hardcore part is also in the accumulation of items, but HC hardcore also means "you can lose big very quickly" as well as "you gather/gain slowly".
Your suggestion is the one that isnt hardcore! This would make towns not care about who they let in, because even if the player was untrustworthy the decision to allow them in would not have far-reaching consequences! I am surprised you used this as a point in your favor, as it is exactly the opposite!
I remember when I joined Jericho on Zeal, there was an area at the center of town called the Town Hall that only town officials had build perms on. Is this a possible placeholder?