According to mortgage data processor Lender Processing Services, Inc., About 36,000 Massachusetts property owners are living – and have been living – rent- and mortgage-free in their homes as they fight foreclosure[1]. While at first this sounds like nothing more than a case of people “falling through the cracks” or lenders opting to leave homeowners in the homes until such time as they believe a foreclosure will benefit the bottom line, the reality is much more complicated. Nearly a third of these borrowers have been delinquent for more than a year, and their tenure in their homes has been prolonged indefinitely by difficult foreclosure processes, extended and ineffective loan modification programs and general sloth in the lending industry as the entire foreclosure process in the state falls under scrutiny and lenders hesitate to foreclose until they know exactly what the future holds for foreclosed properties.
While it might be easy to say that living “rent free” is taking advantage, many of the homeowners in question insist that they would love to pay their mortgages – if they could be sure that it would help them keep their homes. For example, one family has been trying to negotiate a loan modification and believed that they had reached an agreement for a permanent settlement with their lender. However, that lender refused to document the agreement. The family opted for foreclosure, fearing, justifiably, that “without documentation the lender might one day seize the house” anyway. The homeowner in question describes his situation as “You come home every day expecting to be evicted. Given that it the loan modification was to be entirely undocumented, that situation would not have been changed and the family determined not to take the additional financial risk. They stopped making payments 8 months ago.
Grace Ross, coordinator of the Massachusetts Alliance Against Predatory Lending, says that this situation is not unique. “It is the bizarrest thing,” she says. “You have someone [a homeowner] on the edge of tears because no one will take their money.” In light of new state requirements that mandate a 150-day negotiation period in which the lender and the homeowner must attempt to resolve issues before the foreclosure process can commence, you might expect that problems like these would be simple to resolve. However, many homeowners report that lenders require them to stop writing checks for payments, or refuse to negotiate until a homeowner is at least 60 days behind. By the time the requisite delinquency is accomplished, homeowners’ credit cannot handle a refi, which is what many lenders ultimately recommend instead of a modification. Chase has stated that it does not recommend homeowners stop paying on their mortgages.
Massachusetts has the second-longest foreclosure period in the country, and recent rulings on the validity of foreclosures in that state threaten to make the period even longer[2]. Some might argue that homeowners are doing banks a favor by staying in their homes even after they have stopped paying their mortgages, especially in light of recent events that have thrown many foreclosures into dispute. Do you think that it is right for homeowners to stay on until they are removed from a property, even if they have exhausted foreclosure alternatives?
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[1]http://www.boston.com/realestate/news/articles/2011/02/04/in_a_jam_more_skip_mortgage_payments/?rss_id=Boston.com+–+Real+estate+news
[2] http://www.sfgate.com/cgi-bin/article.cgi?f=%2Fg%2Fa%2F2011%2F01%2F10%2Fbenzinga765542.DTL
