Squatters in their own house: When banks don't foreclose

By Alana Semuels
Saturday, March 6, 2010

It's been more than 16 months since Eugene and Patricia Harrison last paid the mortgage on their Perris, Calif., home. Eleven months since the notice got slapped on their front door, warning that the house would be sold at auction.

A terse letter from a lawyer came eight months ago, telling them that their lender now owned the house. Three months later, the bank told them to pay up or get out by the end of the week.

Still, they remain in the yellow ranch-style home they bought seven years ago for $128,000, with its views of the San Jacinto Mountains. They're not planning on going anywhere.

"We're kind of on pins and needles, but who'd want to leave when you put this kind of energy into a house?" said Eugene Harrison, 70, gesturing toward a bucolic mural of mountains, stream and flowers that the couple painted on the living room wall.

Throughout the country, many people continue to default on their home loans -- but lenders have backed off on forced evictions, allowing many to remain in their homes, rent-free.

Several factors are driving the trend, industry experts said, including government pressure on banks to modify loans and keep people in their homes.

And with a glut of inventory in places like Southern California's Inland Empire, Nevada and Arizona, lenders are loath to depress housing prices further by dumping more properties into a weak market.

Finally, allowing borrowers to stay in their homes helps protect the bank's investment as it negotiates with the homeowners, said Gary Kirshner, a spokesman for Chase bank.

"If the person's in the property, there's less chance for vandalism, and they're probably maintaining the house," he said.

Economists say the situation won't last forever, but in the meantime, the "amnesty" may allow at least some homeowners to regain their financial footing and avoid eviction.

In the Inland Empire, the area where Perris is, an estimated 100,000 homeowners are living rent-free, according to economist John Husing, who based that number on the difference between loan delinquencies and foreclosures. Industry experts said it's difficult to say how many families are in that situation nationally because only banks know for sure who has stopped paying entirely.

But Rick Sharga of the data company RealtyTrac, noted that the proportion of loans in which the borrower hasn't made a payment in 90 days or more but is not in foreclosure is at 5.1 percent nationally, a record high. But the number of foreclosures last year was 2.9 million, below the 3.2 million that RealtyTrac economists predicted.

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