Forget Mailing Your Keys to The Bank: Live in Your Home Free (at least for a while)

I don't normally re-post blogs, but I found this posting from the WSJ and found it particularly interesting. In fact, I have some experience with this area as I know someone in my local market that has executed the home squatter strategy to near perfection over the last few years.

This person owns a second home (it's actually a condo on the beach) and has had foreclosure proceedings started on him on 3 different occasions. Each time, he's taken the bank for a "rent-free" ride for 9-12 months. During each of these processes, he negotiated a "new deal / payment plan" with the bank, which ended in dismissal of the foreclosure proceedings. The net result of his actions has been effectively free rent for nearly 3 years (e.g. no cash payments) on his second home since the back payments, interest and penalties/fees were simply added to his mortgage balance (which he may or may not make payments on going forward). I suspect he'll try this again in a few months, and maybe the bank will wise up (doubtful). Or, maybe he will just continue to live in the condo as long as he can continue to play this game (in reality, he cannot afford this second home without playing this game with his bank).

With so many folks upside down on their homes (their home is worth less than their mortgage balance), one might expect to hear about more of these cases going forward. Let's hope that the banks will show a little compassion since many folks in foreclosure today are not gaming the system (per the story above), but genuinely need their help to keep their families in their homes.

Here's the blog posting and a link to the blog (there are some interesting comments on the actual posting, so I encourage you to visit).

Why Walk Away? Mortgage ‘Squatters’ Stay in Their Homes
by Lauren Baier Kim

We’ve written about homeowners who are walking away from their homes instead of paying back their mortgages as home values fall. But why give up your house when you can continue living in it without paying a cent? That’s essentially what some people are doing, according to a recent post on the Big Picture blog.

The blog shares the observation of one South Florida developer, MW, who says that in “the very best neighborhoods of Florida,” owners of houses valued in excess of $2 million have ceased making mortgage payments and are essentially squatting in their luxury homes. And thanks to a backlog of foreclosure cases in the local courts, they may be able to live in their home for months, maybe even years, before the banks can take action (many have also quit paying property taxes and insurance, the post notes).

The post reminds us of a December Journal article written by Amir Efrati about a family in Cleveland who fought off foreclosure in the courts and continued to live in their home for 11 years without forking over a single mortgage payment. Ultimately, the bank foreclosed on the house, the family was evicted and the house was sold to another family, Mr. Efrati says.

There’s a similar tale on Bloomberg.com of a Boca Raton, Fla., resident who hasn’t paid his $1.5 million mortgage since 2002, but still has ownership of his home because the bank can’t prove that it owns the mortgage note. The article says that homeowners across the U.S. have seen foreclosure cases against them dismissed because of lenders’ inability to prove ownership of mortgages that have been pooled into securities and have changed hands multiple times, sometimes with poor documentation.

Of course, many people stay in their homes for a year or two while awaiting eviction. But with so many folks holding negative equity in their homes, should we expect to see more of this? — Lauren Baier Kim