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Housing Mortgage Meltdown: In Foreclosure and Loving It

Psst! Want to live in your house without paying a dime in mortgage? Thanks to the US housing crisis, now you can - at least for a year or two.

More and more struggling homeowners are doing their own mortgage modification: they simply stop paying, and continue to live in their homes while the foreclosure process drags out for a long, long time:

“Instead of the house dragging us down, it’s become a life raft,” said Mr. Pemberton, who stopped paying the mortgage on their house here last summer. “It’s really been a blessing.”

A growing number of the people whose homes are in foreclosure are refusing to slink away in shame. They are fashioning a sort of homemade mortgage modification, one that brings their payments all the way down to zero. They use the money they save to get back on their feet or just get by.

This type of modification does not beg for a lender’s permission but is delivered as an ultimatum: Force me out if you can. Any moral qualms are overshadowed by a conviction that the banks created the crisis by snookering homeowners with loans that got them in over their heads.

David Streitfeld of The New York Times explains why some homeowners are in foreclosure, and loving it: Link

Doesn't surprise me at all. I lost a house in a Chapter 7 last year but the mortgage company has yet to do more than change the locks on the doors. According to city records the house is still mine so I get all the notices for lack of upkeep and the sewer bill. I have sent them all the final court notice saying I no longer own the house but they keep sending me the stuff anyway. Heck the mortgage company keeps sending me the mortgage bill with a letter telling me if I'm not caught up by such & such a time they will begin foreclosure. So they don't even have a clue whats going on from one department to another.
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Yeah, let's let peope who were fiscally irressponsible game the system even more. I have nothing but sympathy for the ones who lost their jobs, had a medical crisis, etc. (things out of their control) that cuased them to get behind on their mortgage. I do not have much for people who took out mrtgages they couldn't afford and were not reponsible adults enough to do simple math before taking on large debts that were out of their financial means. I guess the upside of this is they may be able to keep the house in habitable condition instead of abandoning it or wrecking it then leaving.

I can tell you that the banks are still trying to weasle their way into getting the most money on the sale. The house then sits there degrading while perfectly responsible, financially able people get ran through the process of buying only to have the bank be greedy because they think the interested party's bid is a few grand too low (but appropriate for the market and circumstances.)

What about property taxes? Who is paying those is the occupant/mortgage defaultee is not? Does the bank? I can only
imagine what kind of havoc this will reap when these properties' taxes fall short.
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Actually, they don't. Typically, for instance, when car payments aren't met, the car is taken. Because the loan is for a property, the recourse is to take the property. Bankruptcy is intended so that a person can delete what he owes without giving up his property.

I can see handing over a house to the bank if one has to. I cannot see staying it in without paying for it. Then again, if one has lost one's job, it's better to be under a roof than out on the street. No one seems to be buying the homes, anyway.
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"banks created the crisis by snookering homeowners with loans that got them in over their heads."
Seriously? It is people's greed that made them go out and accept (of their own free will) a loan that was far above their means. The desire to keep up appearances has caused many individuals to get into trouble.
I honestly feel bad for those who were living within their means and either lost their jobs. People who bought a bigger house and were tricked into the bigger loan, I don't feel sorry for them.
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I'm with Vic. Stop crying that you can't afford to pay the mortgage on your $400,000 house and the minimum on your $8000 credit card bill when you only make $75,000 a year. Even if you couldn't do the simple math to figure out what your payments would be, they have mortgage calculators on lots of real estate websites.
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I can see, when all is said and done, staying in the house for a month after the foreclosure is get on your feet (using what would have been that month's mortgage payment as a downpayment for a storage shed and an apartment.) But, to stay in there, or worse, to voluntarily QUIT paying and then staying in an act of defiance tells me these people still think the banks are all at fault. Mercifully, we all make mistakes. But, once it's been pointed out, the ADULT thing to do is to amend your behavior. Sitting it out in the bank's home (because IT IS NOT YOURS ANYMORE) is not showing any improvement.
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There are reasons why this works. The market is still so weak that most foreclosures aren't even offered for sale for months or years, so there's no pressure to evict the former occupant. And if they don't complete the foreclosure, the association fees keep going to the owner of record. And if they let someone live in the house, it's not empty, and is less likely to be vandalized.

As to who is to blame, and irresponsible, there's plenty of blame on both sides. Before it all collapsed, banks were seeing out people they *knew* couldn't afford the mortgage, and lies to them, knowing they didn't know enough about finances to understand they couldn't afford it.

And a lot of people have lost jobs, through no fault of their own.
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They tore down some woods near my neighborhood several years ago and built gigantic fiberboard houses. They all quickly sold, a Mercedes or Porsche in every driveway. I dropped one of my children off at one of these houses for a party. There was almost no furniture in the house. They couldn't afford much of anything but house and car payments, and even that became too much for them.

People lied about their incomes to get these houses, and banks winked at the lies. And yet responsible taxpayers are being asked to bail-out these poor souls.
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@SenorMysterioso - well, it's not that simple. Most of these mortgages are bundled into securities and then sold, which then gets bundled again and sold again and so forth.

They know that a certain percentages of mortgages they sold will default - but obviously they underestimated the number, hence the problem with "toxic asset."

See: 10 American Financial Meltdowns
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Yes, banks are partly to blame for selling people loans they can't afford. Many Americans are nearly financially illiterate. I have read that 20 million Americans pay someone to file their 1040EZ form, which is a one page form with around 10 boxes. If a banker, whose job it is to deal with money all day, tells you that yes, they will give you a $400,000 loan, and you can't figure out the tip on a $20 restaurant check, you're inclined to believe him.
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Yeah, I thought it was financially irresponsible, too, until it happened to us.

We sold our little house in 2004 at the height of the market. Put our "profit" into our dream lot after much searching and started working on architectural plans.

Well, guess what. The market tanked.

Now, after putting in an initial 30% downpayment, paying the loan every month, and sinking thousands into plans, we have to give it up. Why? Well, the value of the lot went down to about 30% of its sale price. With all the money we put in, our equity is only HALF of what we still owe. The bank won't convert to a builder's loan in that situation, we don't have another $40k to bring the equity up to balance, nobody is willing to even LIST our lot for sale because nobody's buying, and the bank doesn't do short sales on lots.

What else are we supposed to do? When we bought the lot, we had a plan, and we could afford it! The only bare lot loans offered were 5year fixed loans with a balloon payment at the end - we won't be able to come up with $80k in cash to pay that off next summer, and in the meantime, we're just sinking money into a lot that we'll NEVER get to build on.

My husband and I consider ourselves financially savvy - but even we didn't count on being priced out of the market so quickly. We don't see any other course of action. Go ahead and get mad at all the people foreclosing right now, but most of the time, it's really not that simple.
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In many countries, if you don't pay your mortgage, you go to debtor's prison. I'm not advocating that sort of thing, but I'll bet buyers there think twice before jumping into something they know they can't afford in a "worst case situation".

Fiscal irresponsibility, illiteracy and an undeserved sense of entitlement are usually the reasons home owners find themselves in this predicament. (obvious exceptions aside).

Especially hilarious to me are the droves of people who are doing this same thing, and STILL not saving any of the money they would normally be using to pay the mortgage. They are used to getting bailed out by everyone else. Jerk-faces!
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I was a squatter. Stopped making payments on my home after getting laid-off. I was expecting a couple of sheriff's deputies to physically remove me any day, but it never happened. Expecting a certified letter in the mail, but I never got one. I stayed in that home for 3 more years. I kept the grass cut. Kept the heat on so the pipes didn't freeze and bust.

Finally, I called the mortgage company (the mortgage had been sold several times). Dumb probably, but the guilt of squatting did bother me, especially after years had gone by. So I had to get out.

That $55,000 house was offered for sale on the court house steps for $87,000. The fees and penalties were so great the balance was $32,000 more than the value of the property.

In the end, the house was purchased for $25,800. It had a nice backyard. On the water. With a pier.
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@overspent: The "only" referred to the fact that no one should take out that much of a loan when they cannot afford the payments--regardless of their income, be it $20,000 or $200,000.
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In many countries, if you don't pay your mortgage, you go to debtor's prison. I'm not advocating that sort of thing, but I'll bet buyers there think twice before jumping into something they know they can't afford in a "worst case situation"

Yeah they also have public stoning because someone committed adultery. come on, this is not the 1700s anymore. I blame greedy banks for the situation in the U.S. If the banks would have learned a little word called "no" rather than lets make a punt load of money. Ius like this Mr. Smith, you really cant afford this loan so we will hit you with a 13% interest ( cause your "high risk") 2 years goes by, Mr. Smith loses his job, draws unemployment, goes and sees a financial planner. financial planner says hey Mr. Smith you will be okay if you get out of your home. Mr. Smith asks how do i do that, financial planner says well you move out. Mr. Smith what will that do to my credit. Financial planner well your only 25, you will be free and clear by the time your 33.... Boom, Mr. Smith's property is foreclosed on. who's at fault? The dough head who financed Mr. Smith.... bottom line!!!!
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