Is It Possible For A Homeowner To Continue Living in His Home After Foreclosure?

The question of how people stay in foreclosed properties sometimes for years is one with a simple answer. The foreclosure process is designed to take title away from a homeowner for non-payment of the mortgages on the property.

If a homeowner stops making mortgage payments why wouldn't the lender take the property back as soon as possible and evict the homeowner immediately. In fact, this is the usual course of action in almost every foreclosure action, however, there are exceptions.

When a homeowner is late making his mortgage payments and the lender starts collection action (harassing calls for example), there becomes an adversarial relationship between the two parties.

The lender views the homeowner as a dead-beat and the homeowner views the lender as a money-grubbing worm. The goal of the lender is to get possession of the property as soon as he gets the deed from the homeowner or through the court and clear out the property and sell it as soon as possible to recover as much of his loss as possible.

So why then would a lender allow a homeowner to stay in the property? There can be a couple of reasons but they are designed to be in the best interest of the lender and not a benevolent action with regard to the homeowner in foreclosure.

The most obvious reason is the lender wants a caretaker in the property to avoid vandalism from neighbors or damage by the homeowner before he leaves. While this sounds simple let's look carefully at the consequences to the lender of the homeowner staying in the property.

First, the homeowner will be paying the electric and probably sewer and water or these utilities could be turned off. Many states for safety reasons will not allow utilities to be turned off even when a homeowner or tenant is not paying the bills. But the utilities are not the important issue.

The important issue is the liability the lender has with "squatters" living in their property. This liability extends to the former homeowner suffering a physical injury for which the lender will be sued.

The lender can easily get property insurance for uninhabited properties but not for inhabited properties. So the "hearsay" that lenders will allow homeowners to stay in foreclosed properties is nonsense. Have homeowners actually stayed in foreclosed properties? The answer is "Yes".

There seems a disparity here but the actual reason is that the lenders start the foreclosure proceeding but do not complete the procedure and get the title or deed transferred into the lenders name until such time as they are ready to evict the homeowner. In the interim until the homeowner is evicted or he leaves, the lender puts "forced insurance" in place for an occupied property.

The homeowner will have to pay for this insurance if he works out his foreclosure problem or the lender will take it as additional loss on the property.
So the stories of lenders "forgetting" about properties, especially high priced homes, and leaving the homeowners in these properties for a year or two is generally an "urban legend".

It may have happened but only when it was in the best interest of the lender. More often, the lender evicts first and would have done better to have the homeowner stay a little longer to help with the transition to a new residence. So don't take a chance on your lender not evicting you when you go into foreclosure.