The U.S. housing crisis erupted by most measures about eight years ago, but in some states where a judge must sign off on foreclosures, tens of thousands of homeowners who have lived mortgage-free for five years may get to stay in their homes because of statutes of limitations.
These prolonged episodes of the foreclosure crisis are certainly not sure-fire strategies for foreclosed-upon homeowners and their lawyers.
But in some states like Florida, New York and New Jersey, it’s a very real scenario unfolding. In the best-case scenarios for these homeowners, they will be able to stay in their foreclosed-upon home indefinitely without paying a mortgage — although they probably won’t be able to sell the property.
The New York Times reports that in a growing number of foreclosure cases filed when the housing market collapsed, judges may not allow lenders to seize the homes because the state statutes of limitations have been exceeded, the newspaper concludes, based on interviews with housing lawyers and a review of state and federal court decisions.
In many of those case, the foreclosed-upon borrowers are still living in their homes. Bank of America, for example, has started the foreclosure process on about 20,000 mortgages that have not been paid in at least five years. The bank estimates that 90 percent of those homes are still occupied.
Many of the biggest U.S. banks have themselves to blame for dragging on foreclosure cases. Shoddy paperwork, botched modifications and highly-maligned overall customer service has plagued lenders, leading to several multi-billion dollar settlements with U.S. and state authorities since the financial crisis.
Since the peak of the housing market in 2006, about 6.7 million Americans have lost their homes to foreclosure.
Another 800,000 borrowers could share that fate when all the delinquent mortgages re settled, according to a Moody’s Analytics estimate.
But lawyers for homeowners in Florida and other judicial states argue that lenders have five years to file for foreclosure after a homeowner defaults, usually after several months of missed payments, and the mortgage is “accelerated,” which means the bank demands the debt to be paid all at once.
Banks counter that they have many more years to file for foreclosure, arguing that the supposed “five-year clock” resets every time a homeowner misses a monthly payment — regardless of when the mortgage was accelerated.
Some Florida judges have agreed.
But in some Florida courts, homeowners’ lawyers have argued that once a foreclosure is dismissed even for technical reasons, the lender cannot refile a new foreclosure to seize the home if the statute of limitations has passed. That would ensure that the foreclosed-upon homeowner could stay in the home indefinitely without paying a mortgage.
Says the Times: “Still, the lender has some recourse: It can keep a lien on the house that must be paid off if the property is ever sold.”
Read the full Times’ article.