Homeowner Begs Bank To Foreclose

Here is a new twist: Someone so desperate to get rid of a house he is begging to be foreclosed. The story comes from the Sun-Sentinel.

Steve Lee moved from Pompano Beach to Los Angeles but hasn't been able to sell his three-bedroom condo, which he put on the market in April 2006, despite cutting the price from $224,900 to $99,000.

Part of the problem, he said, is the home was damaged after a water leak and sewer backup. The repairs are done, but he's still tied up in lawsuits with his condo association. He's begging the bank to foreclose so he can cut his losses.

"I don't want a penny, just take it," Lee said. "It's absolutely destroyed me — mentally, physically and emotionally."

Condo Worth Less Than Zero

There you have it, a $224,900 condo that is now worth less than zero. The bank refuses to foreclose. No one wants it at any price. Is that what it's going to take to get rid of condos? You have to pay someone to take it off your hands?

Earlier this weekend I spoke with Mike Morgan about emails I have been receiving regarding people living in their homes for years without making a mortgage payment. In some instances a bank wants to foreclose but can't because the documents are so convoluted banks cannot prove ownership.

Many have tried to make a big deal out of this but Tanta pointed out in Deutsche Bank FC Problems and Revenge of the Nerd and GM Watch: The Flap Continues that these instances are rare. Mike Morgan agrees with Tanta, and so do I.

Now before I get on the bad side of Tanta, I realize there are liens which makes the condo described above impossible to sell, and those liens may be big enough to cause a bank to not want to foreclose, so I do not want to be accused of over-hyping either.

That said, the emails I have been receiving as well as other cases Morgan describes to me suggest something else is going on. People are living in their houses, they have stopped making mortgage payments, but are making property tax payments and utility bill payments.

Morgan knows cases where this has gone on over a year. Ownership is not is dispute and the people are not fighting foreclosure. They simply choose to make no mortgage payments and the banks choose to ignore it except for sending delinquency notices. Others are emailing me from California saying the same thing.

There can only be one of two things happening here, neither of which is any good.

• Banks do not want those foreclosures on the books right now because they will have to report them. Better a delinquency than an REO?
• Banks are so backed up with foreclosures and REOs, and they are so understaffed in processing foreclosures and selling REOs, that they do not want to take on any more.
  

Here is one reason a bank might prefer an indefinite delinquency vs. a foreclosure: A house with a person living in it will not be squatted upon, stripped of appliances, inhabited by crack or meth addicts, or suffer from mold damage. It will be taken care of.

The phenomenon of banks looking the other way is part of what I call the "pent-up pool of foreclosures". Those in negative amortization situations, and those about to lose their job may also be considered to be a part of the pool. That pool increases every day.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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