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Many Defaulting Borrowers Choose to Exploit the System


Several years into the housing crisis it seems that the learning curve for gaming the system to ones advantage has peaked. Distressed homeowners have discovered they can exploit the process to their maximum benefit by remaining in their home virtually rent free up until the time their property is sold at a foreclosure auction. Lenders, servicers and homeowners alike are thoroughly examining their options in evaluating which path to take, i.e. foreclosure, deed-in-lieu-of-foreclosure or a short sale. At the onset of the crisis there were a number of homes simply abandoned by their payment defaulting owners, however the trend seen today is for homeowners to remain in the property on a rent free basis until the property is ready to be sold months or even close to a year later in a foreclosure sale. Gaming the system to reap the maximum amount of time and cash appears to be the path taken by a number of distressed owners. Short sales are reportedly occurring most often at the higher end of the market where owners could be more concerned about the potential for damaging their credit. At the lower end of the property valuation scale, lenders are seeing more of a resistance to the short sale and find that homeowners prefer to simply remain in the property and run out the clock on living rent free.

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