Are We Seeing A New Trend: Guilt-Free Foreclosures ?
Not three hours ago, I got off the phone with a friend who shared that his house would probably end up in foreclosure. He doesn't want that to happen and had spent several months and 150 pages worth of documentation to get a loan modification. Last week, he learned the loan modification was rejected.
While he is struggling to get his head around the entire situation, one thing he does not plan to do is become a squatter in his own home. Evidently, he is bucking a trend.
Recently, David Streitfeld wrote a piece for The New York Times featuring homeowners who go into foreclosure but still live in their homes, sometimes for a couple of years.
A growing number of the people whose homes are in foreclosure are refusing to slink away in shame. They are fashioning a sort of homemade mortgage modification, one that brings their payments all the way down to zero. They use the money they save to get back on their feet or just get by.
This type of modification does not beg for a lender’s permission but is delivered as an ultimatum: Force me out if you can. Any moral qualms are overshadowed by a conviction that the banks created the crisis by snookering homeowners with loans that got them in over their heads.
In his story, Streitfeld shares that there are no statistics on the number of people who are allowing their house to go into foreclosure and then continue to live there, rent-free. He quotes real estate experts who say the number is on the rise. But, are we talking about five percent, 20 percent, a baker's dozen?
I don't doubt that there are people who decide to stay in their foreclosed home until the last possible minute. In fact, I've heard of realtors, attorneys and accountants advising their clients to do just that to get back on their feet. What we don't know is if the percentage of people who are doing this has increased, or are there just more people doing it because there are more homes in foreclosure?
What we do know is that people have very strong reactions to the entire concept. David Dayen's post at Firedoglake on the situation garnered 137 comments, a great deal of name-calling, and multiple points of view. Dayen is on the side of the homeowners:
The smart people on Wall Street told everyone it didn’t matter if these homes went into foreclosure, since they sliced and diced them so finely that no investor would take a hit. Well, consider these folks as beta testers for your risk spread theories.
While quite a few commenters took the position that businesses walk away from deals all the time, there were other commenters who shared their righteous indignation: