The topic of Americans living mortgage-free in foreclosed homes on which banks do not have proper titles is nothing new - in fact we are surprised that there isn't a robosignature app for that...yet. Neither is the fact that this ongoing reverse capital transfer provides as much as $50 billion in "rental" income for those same squatters. And while the ethical arguments for strategically defaulting on one's mortgage can get very heated on both sides, one thing is certain: the ongoing foreclosure crisis is creating a new subclass of "entitled" people, who certainly enjoy living on the back of the banks, while not paying one cent, and not vacating the premises. According to a new article by CNNMoney, some of the excesses observed within this latest demonstration of unearned entitlement are truly staggering. To wit: "Charles and Jill Segal have not made a mortgage payment in nearly five years -- but they continue to live in their five-bedroom West Palm Beach, Fla. home....Lynn, from St. Petersburg, Fla., has been living without paying for three years....In Thousand Oaks, Calif., an actor has missed 30 payments, and still, he has not lost his home...." In other words, what were once isolated incidents are becoming an epidemic, and like it or not, are creating a massive capital shortfall in bank balance sheets (after all "assets" are supposed to generate cash in most cases), which will likely involve yet another broad taxpayer bailout of these same banks that now have no recourse to do much if anything to evict these same squatters who instead of paying their mortgage (or rent), prefer to purchase trinkets and gizmos. "Some 4.2 million mortgage borrowers are either seriously delinquent or have had their cases referred to lawyers to pursue foreclosure auctions, according to LPS Applied Analytics. Of those, two-thirds have made no payments at all for at least a year, and nearly one-third have gone more than two years."
The specifics, to anyone who has been following this festering issue which threatens to create even further class resentment, are well known:
These cases can go on and on. Nationwide, it takes an average of 565 days to foreclose on borrowers in default from their first missed payments to the final auction. In New York, the average is 800 days and in Florida, where the "robo-signing" issue is particularly combative, it's 807.
If they want to fight evictions hard, borrowers can remain in their homes even longer while their cases are being worked through.
The Segals have been doing that -- in court. They bought their home in 2003 with an adjustable rate mortgage. After a few years, their monthly payments tripled to $3,000, just as their home-inspection business was cratering.
The Segals want the bank to modify the mortgage so payments are affordable, and they think the court will agree that their lender put them into a toxic loan.
Surely, the Segals signed the dotted line under the gun:
"The evidence will show that we were defrauded," said Jill Segal.
Well, with no downside, and just an already worthless credit rating as the opportunity cost, everyone is rapidly realizing that strategic defaults are the way to go:
If they lose, of course, they'll finally have to leave. And, unfortunately, more than 50 months of missed mortgage payments hasn't translated into big savings.
"It's very hard to save," said Jill Segal. "Our company's billing is 90% off and my husband is only working about four days a week."
Lynn, who didn't want her last name used, purchased a two-bedroom on Tampa Bay in 1998 for $135,000.
As the waterfront property's value skyrocketed, eventually reaching $750,000, she refinanced twice (once to expand a business), and took out a second mortgage. She now owes more than $600,000 on the home, which is worth only $235,000.
Living in this foreclosure limbo is "Hell," Lynn said. "I feel like I'm locked in a box. I work for a financial organization and if this came out, it could cost me my job."
And why not? With banks not having to face the consequences of massive failure, why should deadbeats? Especially when there are such sensitive issues to consider as whether the next place one lives, the one where one will actually have to pay for a roof, has a favorable pet policy:
She's still hoping to negotiate the loan. In the meantime, small things bother her. "A couple years ago, I lost my dog and I can't decide on getting a new one," she said. If she has to move, she can't be sure she'll go somewhere that allows pets.
In the meantime stories such as this one are rapidly becoming the new morality drama:
Ruben Martinez, a Staten Island, N.Y., man trapped in a particularly bad adjustable rate mortgage, stopped paying more than three years ago. His attorney, Robert Brown, has managed to stave off one foreclosure.
Martinez, still struggling to find work, has little in savings despite the missed payments. He's earning some income as a pastor and consulting for a non-profit family counseling organization.
"There's pressure on me every day," he said. "I have a wife, three daughters and two grandchildren. Where are we going to live?" To top of page
For now there has not been much dissent with this type of behavior. However, when banks openly turn the tables and make it all too clear that they have absolutely underreserved for this kind of behavior and will very soon need a TARP 2.0, funded by everyone else, but certainly not the squatters, according to whom they dont' have two nickels to rub together, the question will be: will the general population, and here we reference the increasingly more endangered middle class, blame the banks again... or will it turn on itself?