Not three hours ago, I got off the phone with a friend who shared that his house would probably end up in foreclosure. He doesn't want that to happen and had spent several months and 150 pages worth of documentation to get a loan modification. Last week, he learned the loan modification was rejected.
While he is struggling to get his head around the entire situation, one thing he does not plan to do is become a squatter in his own home. Evidently, he is bucking a trend.
Recently, David Streitfeld wrote a piece for The New York Times featuring homeowners who go into foreclosure but still live in their homes, sometimes for a couple of years.
A growing number of the people whose homes are in foreclosure are refusing to slink away in shame. They are fashioning a sort of homemade mortgage modification, one that brings their payments all the way down to zero. They use the money they save to get back on their feet or just get by.
This type of modification does not beg for a lender’s permission but is delivered as an ultimatum: Force me out if you can. Any moral qualms are overshadowed by a conviction that the banks created the crisis by snookering homeowners with loans that got them in over their heads.
In his story, Streitfeld shares that there are no statistics on the number of people who are allowing their house to go into foreclosure and then continue to live there, rent-free. He quotes real estate experts who say the number is on the rise. But, are we talking about five percent, 20 percent, a baker's dozen?
I don't doubt that there are people who decide to stay in their foreclosed home until the last possible minute. In fact, I've heard of realtors, attorneys and accountants advising their clients to do just that to get back on their feet. What we don't know is if the percentage of people who are doing this has increased, or are there just more people doing it because there are more homes in foreclosure?
What we do know is that people have very strong reactions to the entire concept. David Dayen's post at Firedoglake on the situation garnered 137 comments, a great deal of name-calling, and multiple points of view. Dayen is on the side of the homeowners:
The smart people on Wall Street told everyone it didn’t matter if these homes went into foreclosure, since they sliced and diced them so finely that no investor would take a hit. Well, consider these folks as beta testers for your risk spread theories.
While quite a few commenters took the position that businesses walk away from deals all the time, there were other commenters who shared their righteous indignation:
I guess what bothers me about all this is that because I DO pay all my bills, I do not have money to do the things that these foreclosed upon people do. I do not go out to dinner (and if I did, I would order the cheapest thing on the menu), I do not have an airboat! etc. It just really sucks for the people who play by the rules -– who live within their means even when it is tempting not to.
I just find the whole thing (and I am not forgetting about the banks) discouraging and defeating.
Several of the commenters were critical of The New York Times for selecting an unsympathetic couple as the example of people who live in a home rent-free after their house goes into foreclosure. In particular, people took offense that the couple featured in the story still has a boat and that they had refinanced a couple of years ago to buy a truck that they gave away as a business promotion.
The National Council of La Raza(NCLR), meanwhile, is launching a five-part blog series on the HuffingtonPost, called Too Little To Save. The blog posts are an outgrowth of a recent study by NCLR and the Center for Community Capital at the University of North Carolina that found families going through foreclosure suffer from "profound distress."
In the first of the series, Janis Bowdler, Deputy Director of NCLR, shares the story of the Nogales family: a single mom with a 17-year-old daughter and two sons, 18 and 25. When the mom lost their home to foreclosure, she had to move in with her sister. The sister couldn't take the entire family, and so the boys moved in with friends.
Well, for one thing, I think my boys are jealous because I'm providing for [my daughter] and not helping them out. So of course they're jealous ... My daughter and I have moved in with my sister, which I never thought I would ever have to do. Never thought I would be living with my sister at this age. One of the boys comes and stays periodically with me and with a friend and the other one stays with a friend.
It hasn't been easy on the daughter, either. The mom also lost her car, and that meant the daughter didn't have transportation to go to high school. The daughter ended up enrolling in an online high school program.
The difference between The Huffington Post piece and The New York Times story is the difference between Wall Street and Main Street. On Wall Street buying, selling, shorting, trading all seem like a sophisticated game of chance. Sometimes you win, sometimes you lose, better luck next time.
Main Street is where real life occurs. It's where losing a home matters and is more than a slight inconvenience, or a new wealth-building strategy. On Main Street, there's no "beter luck next time" because for many, losing a home is losing the American Dream.
BlogHer Contributing Editor: Business & Career
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