Banks Benefit from 'Foreclosure Amnesty'

Even as legions of homeowners default on their mortgages and await eviction, many still remain in their homes — even 18 months after getting an eviction notice? How is this possible? Banks and lenders are reluctant to pull the trigger — and here is why.

To begin, there is little doubt that U.S. foreclosure activity remains high. According to RealtyTrac, about 308,000 U.S. homes were in foreclosure in February. That’s a 2% downtick from January, but a 6% rise on foreclosures from a year ago. About 2.8 million U.S. homes have already been foreclosed upon in 2009, the company says.

RealtyTrac also reported that the 15% of U.S homeowners are either delinquent on their mortgages or already are in foreclosure.

But banks are also taking their sweet time in evicting foreclosed homeowners. In California, the average time to officially foreclose on a home and evict the homeowner is 229 days in early 2010, according to real estate analyst Foreclosure Radar. But back in August 2008, it only took 146 days to show a homeowner the door.

Why the decline? With foreclosure activity remaining high, and the average value of a U.S. home still stagnant, banks and lenders are increasingly OK with allowing homeowners who have defaulted on their loans to remain in their homes.

Banks and homeowners each get something positive out of the deal. Lenders get some stability in the home itself, as well as some much-needed good public relations — and they don’t have to dump a property into a lousy housing market. With the U.S. housing market in tatters, it’s not easy selling a foreclosed home — most are in troubled, even abandoned neighborhoods, and banks can't get much bang for the buck in selling right away. So they’re content to wait out the economic crisis, and sell the foreclosed house once the housing market is humming again.

For foreclosed homeowners, they get to remain in their homes rent-free for months at a time, until the bank decides to put the house back on the market.

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