Foreclosure as free rent
As some homeowners desperately try to stave off foreclosure, others are happy to take advantage of the possibilities. It's a numbers game: With lenders waiting longer and longer to repossess homes and kick out the former owners, months -- even years -- can go by with defaulted borrowers living in the properties mortgage- and rent-free.
The New York Times had an enlightening story on the subject last week, noting that one attorney in Florida has made a business of helping owners drag the process out as long as possible for just that purpose. He has 350 clients, and every week brings about 10 more.
Even for homeowners who aren't trying to prolong foreclosure, the time line has lengthened:
"The average borrower in foreclosure has been delinquent for 438 days before actually being evicted, up from 251 days in January 2008, according to LPS Applied Analytics," the Times reports.
A crisis as large as this one will bring out all sorts of responses from people. Besides the foreclosure free-renters, you have homeowners who can't really afford their mortgages but are cutting corners everywhere else just to stay current. And homeowners who can afford their loans, but -- for various reasons, including plummeting home values -- have chosen to mail their keys back to their lender and walk, betting that the credit damage is worth it.
Not to mention homeowners who can afford their mortgages, are continuing to pay them and are steamed at the banks, the foreclosure free-renters and the strategic defaulters alike.
Talk about a mess.
Much has been said about whether homeowners should default on their mortgages from a financial standpoint. I'm curious what you think is the most ethical move for borrowers in these situations, and whether ethics and financial sense are in concert or at odds:
Person 1: Cannot possibly afford the mortgage payment. Might qualify for a loan modification.
Person 2: Can barely manage to pay the mortgage. Might qualify for a loan modification.
Person 3: Can afford the mortgage and doesn't qualify for a loan modification, but home's value has fallen 20 percent or more.