BLOG VIEW: In the ever-evolving world of mortgage default servicing, there is an erroneous belief that the recent proliferation of ‘squatters’ invading vacant, abandoned properties is a new phenomenon.
Oh, contraire. During the last big foreclosure cycle in the 1990s, squatting became a serious problem. Some daring people turned pre- and post-foreclosure rentals into a sort of cottage industry. Oh, they were kind enough to have ‘renters’ sign official-seeming rental agreements – but the fact was, they had no right to do so.
I was associated with Great Western Bank, which became Washington Mutual, during the 1990s and saw this problem firsthand. However, after authorities became aware of the problem and the perpetrators were prosecuted – sometimes under the spotlight of the media – it mostly disappeared.
With the latest downturn in the economy, the problem has re-emerged. Today, some homeowners are illegally renting or leasing properties that are in foreclosure to unsuspecting individuals and families who are unaware that the property is in default – or worse, doesn't even belong to the person who rented it to them.
While this is immoral, under certain state laws the eviction process must be handled in the same way it is for legitimate tenants who do not pay their rent. The drawn-out eviction process, in turn, adds to the already protracted foreclosure timelines and costs born by the lender, servicer and investor.
One noticeable change today is that the squatters seem to be more organized: ‘Associations’ have reportedly been formed that advocate for ‘squatters' rights.’ This is taking the entitlement mindset another step closer to the Twilight Zone. These folks actually believe that it is their ‘right’ to occupy these properties despite having no legal claim to do so whatsoever.
And it is not just the cost of longer foreclosure timelines that is impacting lenders – it is also the cost to cure damage and/or deferred maintenance on the assets. Just like the many neighborhoods that have an abundance of renters who do not particularly buy into ‘pride of ownership,’ squatters are even less inclined to take care of properties for the most obvious of reasons – especially in already blighted areas.
Following the most recent housing crash, there were a number of loss mitigation, foreclosure alternative and other government-sponsored programs (Home affordable Modification Program, Home Affordable Foreclosure Alternatives, etc.) that significantly extended the foreclosure process. In addition, foreclosure moratoria and the so-called "robo-signing" settlements further exacerbated the process, as did the antiquated foreclosure processes in the judicial states. The backlogs became incredibly challenging to sift through.
All of these factors combined to increase the number of vacant, abandoned properties, which, in turn, contributed to the proliferation of squatters.
Making the problem even more difficult to solve are the increased legal fees, liabilities and safety concerns tied to it.
Field service providers can and often do provide early warning to their lender, servicer and investor clients when it is discovered that there are squatters living on a vacant property. While there is no magic bullet for eliminating the problem, property inspections can often bring these issues to light early in the process – and field service companies are certainly helping to mitigate the losses associated with squatters.
But I would argue that squatting isn't just a problem for servicers and field service companies – it is also a community problem. Neighbors and others can and should provide ‘eyes and ears’ to help identify squatters who are illegally occupying homes and report them.
While it is ultimately up to the property owner to keep squatters out, private citizens can help address the problem too, while at the same time protecting their neighborhoods and boosting their property values.
I would argue that the problem of squatting impacts homeowners just as much as any property management company or servicer involved in the foreclosure process.
Lynn Effinger is a veteran of the mortgage servicing industry. He currently serves as executive vice president of ZVN Properties, an Ohio-based field services provider.
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