Traditionally, the concept of foreclosure involves seizure of homes by mortgage lenders, eviction of the people who live in them and sale of the foreclosed homes to new owners. However, many people now live in such residences through various means. While some methods for staying in foreclosed homes remain illegal or hold questionable legality, others are deemed acceptable by lending institutions and government agencies.
Homeowner to Renter
Banks and other lenders let some inhabitants of foreclosed homes continue to live in them by renting, despite having defaulted on their mortgages. For example, Freddie Mac's REO Rental Initiative lets qualifying former homeowners rent their foreclosed homes by the month. Freddie Mac bases the rental cost upon typical rents for the area, rather than the monthly payments or value of the defunct mortgage. However, the former homeowner must stop renting and move elsewhere if the lender succeeds in selling the house.
Tenants can legally live in foreclosed homes for a period of time after the bank forecloses on the landlord. A federal law in effect in the U.S. until 2013 allows most tenants to keep renting foreclosed homes for three months after foreclosure, according to Bankrate.com. Some states and cities provide additional protection for people who rent homes under foreclosure. In California, tenants may continue renting for 90 days or until their leases expire, according to the Los Angeles County Department of Consumer Affairs. Lending institutions cannot evict tenants in the city of Los Angeles for the purpose of foreclosure.
Some homeless people illegally live in foreclosed homes and other abandoned buildings. Many prefer them to homeless shelters, according to "USA Today". Criminals also temporarily live in some foreclosed homes, using them for prostitution or drug sales. All foreclosure "squatters" risk eviction and possible criminal prosecution by authorities at any time.
As banks or local authorities delay their eviction, numerous homeowners live in houses long after they cease to make the monthly mortgage payments. Many banks remain reluctant to evict homeowners because the homes prove difficult to sell and vacant properties frequently are at risk of vandalism and fire damage, according to the "Los Angeles Times." Banks may take ownership of a home and threaten eviction but avoid carrying out such threats for months or years to come.
- Comstock Images/Comstock/Getty Images