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The 08 WSJ article, not surprisingly given the source, has a misleading title. The people weren't squatters at all-- they still had legal title to the property and an absolute right to live there. For various reasons, the lenders hadn't commenced or completed foreclosure proceedings. But such niceties are of little importance to the Journal who, as the mouthpiece for the banks, tries to promote moral hazard for individual borrowers, while institutional borrowers (or their organization, the Mortgage Bankers Association) are free to pursue "strategic default." (sorry about the link-- Daily Show's actual link was 404ed)
I predict that no former homeowner is going to regain title to his/her property through adverse possession. For one thing, in the scenario nightbird47 sets out immediately above, the possession isn't hostile, because the lender is letting them stay there. There are also all sorts of legalistic ways to defeat an adverse possession claim as part of a foreclosure suit in a judicial foreclosure state, or in an action to determine title in a non-judicial state. Finally, the possession periods (for example, 10 years in Texas and Missouri, the states where I'm licensed) are simply too long to pass without the lender or subsequent title holder doing something-- and all they have to do is file suit for possession and the 10-year countdown stops, at least according to the law I'm familiar with.
This makes sense. I was thinking of a scenario in which someone (not the mortgage holder) stumbles across some abandoned property in poor shape, maybe in a rural or rundown city area and boarded up, and unbeknownst to anyone takes up residence there. Obviously this would never work with any kind of desirable property. But, theoretically speaking, if this individual somehow managed to occupy long enough, could they claim it.
The vast majority of those being foreclosed upon did not pay their mortgages.This is not some vast conspiracy or example of moral hazard (the new buzzword, along with entitlement). It is a matter of expedience gone wrong. Yes, they should have crossed their t's and dotted their i's. But, all this is going to do is allow defaulters to hang on a bit longer. Now there's your moral hazard! And it will further drag out the housing slump.
I agree. Of course they would lose their homes, as they would their cars, if they cannot pay. I wasn't passing moral judgment one way or another, just looking to learn what the facts are. Rather than have an entire formerly nice area descend into the pits, some kind of residency by someone (squatter or other) might benefit the lender (if they can ever trace the current one and find the title) as well as the neighborhoods and homeowners who do not default and renters as well.
Here's why it's important that the right party--the holder of the note-- do the foreclosure, from the borrower's perspective. The main instrument in a foreclosure isn't the mortgage (deed of trust in non-judicial foreclosure states) but the note, the promise to pay. Foreclosure of the mortgage is to collect on the note by proceeding against the collateral.
Let's assume a $100,000 mortgage that goes into default, and the property is sold at foreclosure sale for $80,000, which is very likely, since very few if any bidders can pay cash at the sale, which is what's required usually.
That leaves a $20,000 deficiency, which the borrower still owes, but in our "wrong noteholder" scenario, the $80,000 went to the wrong party. That means that two creditors can sue the borrower-- the right noteholder, for the $100,000 he never got, and the wrong noteholder, for the $20,000 deficiency (more often, vulture capitalists buy these foreclosed notes for pennies on the dollar in the hope of scaring up a settlement from the borrower). Who wins the suit(s)? If they're all in the same suit, the judge probably works it out, but things are often messier than that. It's unfair to let a defaulting homeowner escape her mortgage, but it's equally unfair to demand she pay twice.
This makes sense. I was thinking of a scenario in which someone (not the mortgage holder) stumbles across some abandoned property in poor shape, maybe in a rural or rundown city area and boarded up, and unbeknownst to anyone takes up residence there. Obviously this would never work with any kind of desirable property. But, theoretically speaking, if this individual somehow managed to occupy long enough, could they claim it.
Ten years in Texas or Missouri. Theoretically possible, won't happen in reality.
Query about moral hazard to those who have raised it-- why is it immoral not to pay your mortgage (or any other debt)? Is it equally immoral if, say, the Mortgage Bankers Association lets the mortgage on their headquarters building go into default? And can a corporation, or a voluntary association like the MBA, even act morally, or is it's overriding principle self-preservation? And where is it stated as a MORAL principle that financial debts must be repaid? I'd like to see what the thought process is here.
The vast majority of those being foreclosed upon did not pay their mortgages.This is not some vast conspiracy or example of moral hazard (the new buzzword, along with entitlement). It is a matter of expedience gone wrong. Yes, they should have crossed their t's and dotted their i's. But, all this is going to do is allow defaulters to hang on a bit longer. Now there's your moral hazard! And it will further drag out the housing slump.
Oh sure. Bailouts for the big banks, and FU to the little people.
Ain't America Great?
If you are going to do shoulda be's -- Shoulda let the Mega Banks implode from this crooked crap they cooked up and dumped on US. While the deposits protected by bailing them out were (only) in the billions, the assets that would have went out to market by chopping up and reselling the Mega-Banks would have covered Trillions, and left US in better shape for the process.
As far as what is dragging out the housing slump -- it is from trying to preserve the false market prices of the REO to protect these same banks.
The vast majority of those being foreclosed upon did not pay their mortgages.This is not some vast conspiracy or example of moral hazard (the new buzzword, along with entitlement). It is a matter of expedience gone wrong. Yes, they should have crossed their t's and dotted their i's. But, all this is going to do is allow defaulters to hang on a bit longer. Now there's your moral hazard! And it will further drag out the housing slump.
What you say is true. People don't realize that it is not an advantage to a bank to have to repossess a home. Banks lose money in foreclosures. If someone is paying their mortgage the bank has no reason to try to take that house. I think some mistakes were made, maybe due to there being so many foreclosures and it is being blown out of proportion.
True up to the point that the homeowner stay in the house past the foreclosure date. From that point on they are trespassers and hostile.
Once the homeowner is foreclosed on any occupancy past the foreclosure date allows them to hold the property by Adverse Possession until the sheriff evicts them or they leave.
IMO we will hear more about people just staying in their houses after the foreclosure date since some sheriffs are refusing to put out family's in some areas. I don't know if any will win claim
to their property by Adverse Possession if they get lost in the shuffle but I'm sure some will.
The above sentence in bold makes no sense whatsoever and I apologize for being rude.
There is actually a great advantage to this for both the people living in the house and the bank. The bank usually has no plans to sell, and if it was empty it would be destroyed by non-maintaince or druggies moving in. The people who don't move keep the lawn cut, water the flowers, and pay the utilities. If they weren't there increasing numbers of cities are charging heavy fees for doing it for the bank, or fining them for non-maintaince.
It there wasn't an advantage to the bank, they wouldn't be letting people stay. Think of it as free maintaince.
I don't think so. Squatters have nothing to lose. I don't think you can trust them to maintain a house.
There is actually a great advantage to this for both the people living in the house and the bank. The bank usually has no plans to sell, and if it was empty it would be destroyed by non-maintaince or druggies moving in. The people who don't move keep the lawn cut, water the flowers, and pay the utilities. If they weren't there increasing numbers of cities are charging heavy fees for doing it for the bank, or fining them for non-maintaince.
It there wasn't an advantage to the bank, they wouldn't be letting people stay. Think of it as free maintaince.
All very true. However, unless the bank give the former homeowner written permission to stay then the former homeowner is starting the clock on Adverse Possession.
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