Saturday, June 05, 2010

Live Rent Free, Don't Give the Bank the Keys (Reprinted)

Here is a reprint from this blog back 3 years ago, September 6, 2007. The probability of it, has come to pass.

Everyone is talking about all of the foreclosures and how rental rates will rise because of the demand from all of the displaced owners. Maybe there is one item that has been overlooked.

When banks foreclose and get title, there is a year or two wait to complete the process. We are talking about the actual deed, not a note saying that the title was conveyed and it is free and clear. The paperwork takes a while.

In the mean time, the neighbor across the way trades out his broken dishwasher with the one in the foreclosure. In California, the air conditioner would probably grow legs in two weeks. In a year’s time, there might not be much left. I’ve seen places that the neighborhood kids would use and by the time they are finished with it, you really wouldn’t want it at any price.

This can even get worse. Consider a foreclosure in Colorado, the pipes freeze and break. In Florida, a closed up house might mold over like a loaf of bread. Some states have laws on the books that allow the foreclosed owner two years to redeem the house after the event. So, clear title could be a very long wait.

Considering the length of time needed to sell a house lately, a year is not an unreasonable estimate of time. The note holder has a chance to lose big time. His asset could be run through the local recycler without his knowledge, copper pipes and all. It behooves him to have the house occupied.

The foreclosed home owner can’t lose if he plays his cards right. Walk up to the lender handling the foreclosure, and offer to keep living in the house rent free until it is sold, on the condition that you take care of the lawn and the house in general. Sounds crazy, but who the hell is going to buy it in this market? At least nobody is going to steal the air conditioner before you have a chance to sell it. At the present time, things aren't quite that bad, so you might have to pay monthly rent payments.

An impossible pipe dream? People living in foreclosed homes and not being tossed out?? It’s happened before, just not in the last 75 years. States even passed laws so it could happen.

Post-note June 5, 2010:

The property tax arrears on these homes could become a nightmare. They are not being paid and the states depend on the dollars for their budgets. Just who owes the money is the real question. Some states allow you to pick up a home for back taxes, others don't. In California it looks like the bank pays the back taxes from the proceeds of the foreclosure sale. If the home is upside down, the FDIC, FANNIE, or FREDDIE become the indirect guarantor of the taxes. It's just another way of saying this is a free ride on the taxpayer.


dearieme said...

Replace "department" by "world" and this famous outburst by a British civil servant is to the point:-
"We're all fucked. I'm fucked. You're fucked. The whole department is fucked. It's the biggest cock-up ever. We're all completely fucked."

Jim in San Marcos said...

Hi Dearieme

This isn't one of those special moments where your desires are satisfied and you feel the need to smoke a cigarette, is it?

It's kind of hard to believe you can get a place in history with a quote like that and they even Knighted him. Go figure.

Anonymous said...

The Whitman vs.Brown race for Govenor will be a very clear choice, for once.
Brown allowed govt. workers to unionize, resulting in $100,000. a year pensions.
Whitman wants to rein in unions, so will be opposed by teachers, firemen,police, and anyone else counting on a fat pension.
Should be very entertaining.

frakrak said...

Now the people in this link (below) are definitely "lighting up" because they have just screwed the system! I guess for the majority though we may all soon qualify for that Knighthood:)


Jim in San Marcos said...

Hi Anon 9:02

I really don't see Jerry Brown even being in the race. He's too old. This guy does not buy green bananas. He belongs in a retirement home. Old people in California are invisible, you can't see them---it must be something in the water. The under 40 crowd will fail to identify with him.

If Meg Whitman wants to spend 100 million to get elected, we should probably hold elections yearly. She has more money in the bank than the state legislature.

And then from there California governers always run for president.

Jim in San Marcos said...

Hi Frakrak

Thank you for the link.

I guess that explains where people are getting the money to stimulate the economy. They are not paying their house payment.

People are looking at this new spending as a proof of a recovery in progress.

It's a little like eating poison mushrooms; you get real sick, then start to recover a bit and then all hell breaks loose, resulting in a very painful death.

Something has to give, all of these people are living rent free. There is no free lunch.

Tyrone said...

I went back to that post in '07. I left a comment about a property...

4374 Sebastopol Rd, Santa Rosa, CA
List Price: $342,900
Sale History
04/18/2007: $353,250
07/19/2000: $60,000

Zillow now doesn't show the '07 sale, but has this...
03/17/2008 $210,000 Sold
04/01/2008 $243,000 Listed for sale

A house nearby recently sold for $59K, and the Z-estimate is $359K. Pretend and extend.

AIM said...

People are living in their homes and no longer paying their mortgages or property taxes. It will go on for years. More and more people will do it. The banks will just sit back and let it happen, will only foreclose on a small percentage of their non-performing loans. It will be worse and worse as the next waves of defaulted loans hit. The banks will just wait... until the government comes up with a way to bail them out.

frakrak said...

Jim what if in the next 12 months there are three times as many foreclosures, then the banks holding the title (deed) go belly up, who would own the house then?

Our housing market is just on the edge of oblivion, interest rates are right at the point where people will be forced to hand the keys back, utility prices are sky-rocketing.

I am all for people living in these homes and taking advantage of the free rent, especially families. What a bloody mess....

JMS said...

I'm not a fan of people getting free rides. Whats worse though, letting the house go vacant and slowly deteriorate or having someone at least take care of it?

Rob in NS said...


I wonder why I pay my bills. I guess I'm the sucker. I should be HELOCING the shack I live in to the hilt and going on a spending spree.


frakrak said...

It is a mess, I guess it shows that not only big business has got it to this point, but the average joe has had a hand in it to!!

From what I have read there are many U.S. banks that have not joined in the crazy lending spree over the past decade and have acted and lent conservatively .... but when it hits the fan, they will not be rewarded.

Jim what should we think of all this? It is such a mess and looks like it is about to unravell big time ...

Jim in San Marcos said...

Hi Frakrak

I am not sure how this housing mess will turn out. These people can't live in the houses rent free for a long period of time, because of the adverse possession statues. Which states if you can live on someone elses property for say 5 years without paying rent, you can take claim to the property.

So if they can go the 5 years, they get the property for free, not a bad deal. It does tent to russle my feathers a bit.

AIM said...

Keynesianism is coming to its end point. Every society with fiat currency has failed. This one will be no different. We're watching it disintegrate before our eyes. Out with the old, and hopefully... in with the new.

Jim in San Marcos said...

Hi Rob in NS

You raise and interesting point. There really is no reason to toe the line---yet.

I think that when we can realize the benefits of paying our bills on time, we will know this crisis is over. So far, that seems to be a hell of a way off.

Jim in San Marcos said...

Hi Aim

Your quote "Out with the old, and hopefully... in with the new."

"Hopefully"-----can be a very expensive word. I am in your boat, it's hard to tell what will happen next.

Take care

Jim in San Marcos said...

Hi Tyrone

How did the price go that low? Did the plumbing and electrical get "recycled?"

Sounds like it was trashed or was this an "all cash offer"----since the banks aren't loaning money (shhh that's a secret).