The sheer number of homes in the foreclosure pipeline may have slowed the actual foreclosure process down so much that some borrowers claim lenders have surpassed the statute of limitations to complete the foreclosure and are now owed their home free and clear.

Daren Blomquist, vice president of independent housing data provider RealtyTrac, says the lengthy foreclosure process and the number of backlogged cases in lenders’ pipeline have thousands of homeowners, who haven’t made payments in years, in a new war to keep their homes.

Surplus foreclosures in hardest hit areas like New Jersey, New York and Florida have produced a new group of borrowers who haven’t made a mortgage payment in five or more years but are still occupying their home.

“Foreclosures have a statue of limitations for completing the process, and if the bank took too long to close and exceeded the statute of limitations, the argument currently being made is that these homeowners can no longer be foreclosed upon,” Blomquist says.

Lenders have five years to foreclosure on borrowers in the state of Florida and six years in New Jersey. Attorneys in Florida are pushing for full case dismissal with no possibility to re-file for foreclosure if the five-year time period has passed.

Free Homes on Default?...

Do these non-paying homeowners deserve to a free home after years of not making any mortgage payments, while others have faithfully paid their mortgages?

Conclusions drawn in Florida courts may set a precedent for other states in the future. “With regard to situations in places like Florida, a number of issues have been presented, which are ultimately being examined by the Florida Supreme Court,” Blomquist says.

“One question is whether the bank followed the proper foreclosure processes,” he says. “Some homeowners argue that appropriate steps were not taken and are disputing the foreclosure.”

From improperly completed documentation to refinances and modifications gone awry, homeowners have endless stories and complaints against how lenders handled the foreclosure process.

Another argument is the lender took too long to foreclose on the property, exceeding the statute of limitations. States like Florida, New Jersey and New York are “judicial foreclosure states,” meaning foreclosures must go through the court system, which may create a lengthy foreclosure process.

Data from Nolo.com, a consumer publication that addresses legal matters, shows on average it takes 1,103 days to complete a foreclosure in New Jersey, 986 days to foreclose on a property in New York, 935 days to foreclose in Florida and 835 days for the foreclosure process to complete in Hawaii.

“One district court in Florida ruled in favor of allowing this group of homeowners to never be foreclosed upon,” Blomquist says. “However, another court ruled differently, which is why the issue is being determined by the Florida Supreme Court.”

Arguments are being presented this month and Blomquist says that although the Florida example may be unique he could possibly see this being an issue in other judicial foreclosure states.

B.J. Reeves, real estate attorney at Town and Country Title in Pembroke Pines, Fla. says she personally knows a homeowner involved in a lengthy foreclosure case and is surprised the lender allowed mortgage payments to lapse as long as they did. “This homeowner knew better but simply didn’t pay her mortgage,” Reeves says.

Regardless of the Supreme Court decision, homeowners will ultimately be held accountable in some capacity, Reeves adds. “Either they will be allowed to refinance, pay back what they owe or will still eventually be foreclosed upon; but I can’t imagine borrowers will just be given a free and clear pass,” she says. Also, a lien will most likely be placed on the property, which will need to be addressed should the homeowner decide to sell.

Additionally, Robert Van Raaphorst, associate vice president of public affairs at the Mortgage Bankers Association, says homeowners’ credit will likely be ruined.

“This won’t be favorable for the borrowers’ credit ratings and being approved for loan requests, such as student loans will not be possible,” Van Raaphorst says.

Foreclosures Diminish While Sub-Prime Tries to Rear Its Ugly Head...

Nationally, foreclosure numbers are decreasing, but some real estate agents report seeing a troubling trend they hadn’t seen in years--sub prime lending trying to make a comeback.

“The last crisis was due in large part to the lax lending standards that were in place in 2005,” says Sharon McLennon, broker at Splendor Realty in Lauderhill, Fla. “Stated income, stated asset, no documentation loans put many people in unsustainable homeownership.  These ‘liar loans’ are slowly starting to surface again but as a general rule, the lenders are holding the line and require verification.  As a result,  loans are still more difficult to get.”

Blomquist wonders who is trying to make these sub prime loans. “One piece of the information is to examine the loan to value," Blomquist said. "The higher the LTV [loan-to-value ratio], the less amount the person is putting down as a down payment. This suggests looser lending standards, which could be coming from non-bank lenders.”

As someone who works with lenders on an ongoing basis, Reeves says she hasn’t seen sub-prime or liar loan type documents come through her office. “The number of regulations passed down by the Consumer Finance Protection Bureau alone should prevent the sub prime from re-emerging again,” she said.

The good news is the reduction of foreclosures in some of the hardest hit areas continues to decrease. “As market values continue to climb, strategic default is no longer an intelligent choice for owners and so we are seeing a slow down in the delinquency rates,” McLennon says. “There remains a significant shortage of inventory in the market and this shortage is putting pressure on prices.  Per the Greater Fort Lauderdale Association of Realtors  -  the number of closed foreclosure sales has increased by 5% and the median sales price for closed foreclosures has increased by 16%. Active foreclosure listings have declined by 5% year over year as of September 2015.”

Danielle Hale, the National Association of Realtor’s managing director of housing research, points to positive data on the condition of the foreclosure market. “Nationwide, the foreclosure rate is decreasing and second quarter statistics show numbers to be down,” she says.

Data from RealtyTrac show that "a total of 304,439 U.S. properties started the foreclosure process in the first half of the year, down 4% from a year ago and 18% below foreclosure starts in the first half of 2006 before the housing price bubble burst in August 2006."