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years ago, even though they continue to live in their five-bedroom home in Palm Beach County, Fla. And Florida retiree Charles Light is till holding on to his three-bedroom h om e i n t he s ce ni c G u l f C o as t community of Cape Coral, as well as a five-bedroom residence in the town of Bartow. It’s been almost two years ince he made a mortgage payment on either one. With the nation’s foreclosure system all but paralyzed after an avalanche of loan failures and “robo-signing” scan-
dals, many delinquent homeowners
are defying lenders and staying put.
Instead of packing up and slinking
away, they’re living for free, some-
times for years. They’re hiring lawyers to chal-
lenge their cases, and many are winning reprieves
or causing the process to stall even further.
“They go into a perpetual state of limbo where
nothing happens or the case goes very slowly,” says
Light’s attorney, Mark Stopa.
The extraordinary delays are hampering hope of a
housing market recovery and pushing this year’s troubles into
next year, says Rich Sharga, senior vice president at Realty Trac,
which tracks foreclosure data. The logjam also has kept thou-
sands of new cases from being filed.
“The system’s broken,” he says.
With about 4 million loans currently
in some stage of delinquency, lenders
and lawyers say nonpaying owners are
living in moderate to lavish communi-
ties across the country.
Often, banks are not pushing to go to
foreclosure. They seem to be in no hurry to add to their swollen inventory of
repossessed homes, which now stands
at a near record 862,000 nationwide.
Also contributing to the gridlock is
intense scrutiny by regulators stemming from the scandals in which banks
cut corners and falsified documents to
rush homeowners to foreclosure. Until their cases are resolved, owners can
legally remain in homes they would’ve
lost long ago in normal times.
“The [banks’] paperwork was so
messed up in so many cases that it’s
mind-boggling,” says Florida lawyer
Peter Ticktin, who represents the Segals. “The delay is huge.”
Ruben Martinez lost
his job and can’t manage
to save any money, though
he stopped paying his
mortgage six years ago.
Americans harbor mixed feelings about their nonpaying neighbors. Some are sympathetic to their financial plight.
Others see them as freeloaders who are gaming the system, an
insult to the millions of working homeowners struggling to pay
their mortgages on time. In Miami, Francisco Permuy and other
residents of his condominium building face higher homeowner
association fees to cover for nonpaying owners who continue
to live in the building. “Some people are very angry,” he says.
Not paying can give troubled borrowers a chance to get back on
solid financial ground. “I say take advantage and save $20,000,
$30,000, $40,000 or more in order to go live somewhere else,
or buy a house outright,” says Stopa, whose law offices are in
Tampa. He says that despite homeowners’ clamoring for help,
many banks never provided any. Now, he says, “homeowners
are doing what is in their own best interest.”
Bankers say the cost of living for free will ultimately result in
higher interest rates shouldered by people who had nothing to
do with these delinquencies. “It will be factored into all mort-
gages so future borrowers will be paying more,” says Bob Davis,
executive vice president at the American Bankers Association.
Delinquent borrowers say they have few options. They cite
job loss, collapsed real estate values and subprime mortgages
that reset to unaffordable heights.
Martinez, 58, says he would happily trade places with a working, paying homeowner. “I don’t like how I’m living. It’s embarrassing to me,” says Martinez, who lost his job six years ago and
fell behind on his mortgage. The bank demanded a $7,000 payment. He offered $3,500; the bank wanted the entire amount.
“What was I supposed to do?
If I could strike a deal with my
lender, I would,” says Marti-
nez. “People who feel it’s un-
fair, they’re entitled to their
opinion, but they should make
sure they have the facts before
they make a judgment.”
Borrowers like Martinez face
serious consequences that
could last for years. Bank-im-
posed fees, interest and fines
covering the time the home
goes unpaid continue to drive
up the mortgage principal.
Moreover, once a foreclosure
goes through, banks can file
suit for the balance unless
The Segals haven’t
paid their mortgage in
four years and now owe
twice what the home is
worth. Their foreclosure
case is pending.