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

By Alana Semuels
Saturday, March 6, 2010; E05

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.

More evidence is provided by another firm, ForeclosureRadar, which says it now takes an average of 229 days for a bank to foreclose on a home in California after sending a notice of default, up from 146 days in August 2008.

"For some reason, banks are being more lenient with homeowners who are behind on their loans," Sharga said. "Whether it's a strategy to try and slow down the volume of foreclosures or simply a matter of the banks being able to keep up with volume is something that banks only know for sure."

Lenders said the trend reflects their efforts to work with borrowers to modify loans to avoid foreclosure. Bank of America "continues to exhaust every possible option to qualify customers for modification or other solutions," spokeswoman Jumana Bauwens said.

Citibank said this month that it would let borrowers on the brink of foreclosure stay at their homes for six months, whether or not they make payments, if they turn over their property deed.

Such policies may partly reflect the fact that lenders can't keep up with all the foreclosures.

"The mortgage lenders are so backlogged that some people are able to slip through the cracks," said Kathryn Davis, a real estate agent at America's Real Estate Advocates in Corona, Calif..

That was apparently the case for the Harrisons, who were told at various times that their house had been sold, that it belonged to someone else and that it was empty.

"It's been frustrating, a real major pain in the buttocks," said Eugene Harrison, a nondenominational minister. The Harrisons missed their first payment in October 2008, shortly after Patricia, 57, lost her job as a health-care aide and her husband's part-time towing work dried up. They said they applied for a loan modification with Countrywide Financial (since acquired by Bank of America) but were told that they couldn't receive one until they were three months behind on their payments. So they stopped paying.

In April 2009, they received a notice warning them that their property "may be sold at a public sale," and in July, they were told their house was a bank-owned property.

The bank sent a notice by FedEx in October, demanding $3,000, and when the Harrisons called to discuss it, they were told they had four days to vacate the house.

Panicked, they arranged to stay with family in New Mexico and started packing their things, but no one came to kick them out.

"We were afraid to leave the house, afraid the sheriff was going to come," said Patricia, an amateur painter.

After contacting consumer advocates about their situation, the Harrisons decided to stay put. Soon after, two men in a white pickup truck showed up at the house and looked in the windows, telling the Harrisons that they thought the house was abandoned. The Harrisons suspected that they were planning to move in and chased them away.

The Harrisons said they don't want to leave, but they are in the midst of a dispute with Bank of America about the terms of their loan modification. The bank said it mailed them documents this month.

Although the Harrisons' future is uncertain, industry observers agree that the rent-free life can't last forever. As home values climb, banks will find it financially advantageous to foreclose on delinquent borrowers and sell their properties.

"In many cases, particularly in California, people owe a boatload of payments, and no bank is going to forgive that," said Guy Cecala, editor of Inside Mortgage Finance, a trade publication.

-- McClatchy Newspapers

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