My wife’s sister’s husband’s family lives in a condominium on Florida’s Gold Coast in which they are no longer making any mortgage payments.
"How does that happen," my wife asked me.
As always, I turned to experts to find out.
I’ll begin by saying my brother-in-law’s brother, sister and mother, as a group, are not the most financially astute people in the world.
Their story begins with my brother-in-law’s mother who owned free and clear a Florida condominium, but the unit needed considerable repair after being pounded into submission by a series of hurricanes that hit the state a few years back. Instead of getting the condo immediately fixed and ready for occupancy, her children decided instead to move in with her and buy a new, bigger condo with one of those cheap, specious mortgages offered to folks with little or no credit, which neither my brother-in-law’s sister nor her brother had.
Now, it’s a few years later and they can’t afford to pay the ever-increasing mortgage payments so they opted to just not hand over any more dollars to their lender.
The word from the my sister-in-law is that they intend to move back to the original condominium that was harmed by the hurricanes, but in fact they are not doing anything — just sitting in the newer condo and not making payments.
For expert advice on this matter, I called Jon Maddux, who operates a company called You Walk Away LLC in Carlsbad, Calif. The irony about the name Maddux decided to call his company is that Maddux doesn’t really advise people who are in difficult financial straights to just up and leave their current abode, but to not pay anymore on the mortgage and to stay put as long as they can.
Why? As a result of the devastating mortgage crisis, the banks are simply flooded with bad loans and their processes to handle so many foreclosures are overwhelmed. Lenders simply can’t get to it all. Even if people stop paying on their mortgage, the banks just can’t seem to react fast enough.
Also, because the banks are so overwhelmed they are making conscious decisions to delay evictions to a later point in time.
"Sometimes the banks simply won’t file a foreclosure notice," says Maddux. "Or, the lender makes a decision to cancel an auction sale and reserve the right to foreclose due to other circumstances, such as a big tax lien or no property taxes being paid. That’s happened many times with our clients who stayed in their home a year or more."
Maddux has also found lenders are not eager to foreclose in jumbo loan situations. "One of our clients had a $2 million loan and had been in their house a year and a half without making a payment," he says. "The loan could have slipped through the cracks, but more than likely in the big picture, the bank probably had multiple loans in that ZIP code and if they foreclosed they would have had to take a write-down on a lot of the assets." …CONTINUED
Isn’t this a lot like squatting? I asked Chad Ruyle, an attorney with the law firm Ruyle & Ruyle in San Diego. Not at all, he responded. "Squatting is when you are in someone else’s home."
Even if no mortgage payments a made, a person still owns that property until the bank legally and officially takes it back through the foreclosure process or the house is sold to someone else, Ruyle explains.
"The banks can’t force you out until they own the property," Ruyle adds. "You own the property if you are late in payments, have a notice of default filed or a notice of trustee sale. Nothing can be done until the property has been sold at auction or the banks take it back."
Marlene and Steven McGuire lived in a 2,600-square-foot home in North Glenn, Colo., which they had bought with an interest-only loan. As the mortgage payments became increasingly onerous, they realized they couldn’t afford to keep going in their house so they turned to their lender for help, even filing for a loan modification.
They claim that the lender did not respond to their requests for assistance, and "we decided to walk away," says Marlene McGuire.
However, they didn’t "walk away" immediately. They stopped paying in December 2008 and didn’t leave the property until spring 2009.
"The bank didn’t force us out," says McGuire. "We just decided to leave."
Not paying is not as simple as it seems. The "homeowner" still needs to outlay for such things as utilities, taxes and — most importantly — insurance. Even if you don’t pay your mortgage or you actually do walk away, until the bank legally takes back the home you are still liable if something tragic happens at the property.
"The name of our company is You Walk Away," says Maddux, "but we encourage people to stay in the home and use that money not being paid to the banks to pay off other debts. If you stay in the house a year or more, in many cases you can save money up for a rental downpayment, pay off your debt, and/or avoid bankruptcy."
This "live in the home and not pay your mortgage" phenomenon has happened only through the wink-wink compliance of the lenders. If the home goes vacant, utility bills aren’t paid, all common maintenance from landscaping to repairs stops, and, worse, the property is open to vandals. The banks prefer to have the properties occupied.
Perhaps, we are now creating a whole new class of deadbeats.
Steve Bergsman is a freelance writer in Arizona and author of several books, including "After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade."
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