Homeowners who are behind in mortgage payments often make one mistake that, if not made, would allow them many more months to recover financially before losing their home. This mistake is when borrowers move out of their home before they are legally required to do so. And now, with the steep rise in the foreclosure rate over the past few years, there are even more reasons to stay put as long as possible.
Of course, a small number of homeowners realize the financial advantages of delaying the final move into a new apartment or rental house for as long as they can. Every month without a mortgage or rent payment is extra money that can be used to pay off other bills, keep on top of car payments, or simply save up for a security deposit or emergency fund. And as long as they still have legal rights to remain, there is no reason to move just yet.
Some homeowners even go to great lengths to get even more time from the bank to stay in their home. They do whatever they can to apply for solutions to foreclosure, request postponements of a sheriff sale, and defend the lawsuit in court for months. Finally, they file bankruptcy to drag the process out even longer. In many cases, this can result in months or years of living rent and mortgage free.
A far greater number of homeowners, though, fall behind on their monthly bills, listen to the lender's threats of foreclosure, and simply move out of their house. The property sits abandoned while the banks takes it through the legal foreclosure process, and then it sits abandoned while the bank hires a local Realtor to sell the home. In the meantime, if falls into disrepair and becomes a victim of squatters or people stripping the property of anything of value.
However, now that banks have so many foreclosures on their books, many foreclosure auctions are simply being postponed for no apparent reason. While more homeowners than ever are applying for assistance, even more sheriff sales are being delayed. In addition, lenders are often incompetent enough to proceed with a public auction of a home even if the borrowers are negotiating for a loan modification or other plan.
This indicates that the banks are voluntarily postponing some sheriff auctions in order to avoid having to declare the loans as losses and then declaring the properties as assets at their true market values. Banks have gotten away for years with overestimating values of homes in order to inflate the values of the loans on the properties and the securities made up of these mortgage debts.
A sheriff sale, though, has the result of voiding out all of these fraudulent financial calculations. The property is auctioned off for a very small amount, and the rest of the loan is written off as a loss. Then, the bank must take possession of the house if there are no third-party buyers and declare the fair value of the home on its balance sheet. This can be quite a bit less than the appraisal stated it to be at the time the loan was originated.
Thus, banks are avoiding this problem of living in reality by postponing sale dates with ease. Even if no one is living in the property, there can be a delay in the sale -- all the bank has to do is contact its local attorneys, who contact the court and sheriffs department to cancel the sale and reschedule it for the next month.
This is a new development in the foreclosure crisis that more homeowners should take advantage of. Banks do not want to own these properties, and they sure do not want to declare them at their true market values. With a little bit of effort, borrowers may be able to have the sale delayed for a quarter of a year or more, just because there is such a huge backlog of properties in some stage of foreclosure.