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Leaving immediately would encourage the bank to sell the house as quickly as possible to a new owner. In many parts of their country, there is a large excess o

Leaving immediately would encourage the bank to sell the house as quickly as possible to a new owner. In many parts of their country, there is a large excess of supply, so it is unlikely that a quick sale is possible. Which means that the house will likely sit on the market for 6-12 months. In some areas, banks are walking away from properties they foreclosed upon, legally abandoning them. The responsibility for maintaining or demolishing the property then reverts back to the original mortgage holder, who often gets no notice and believed that they had nothing to do with the property since it was foreclosed. Under such circumstances, I think it can make sense for people to refuse to move out: if the house will continue to be an open ended obligation for you, you might as well at least get a place to live out of it. See this article for more information: http://www.cleveland.com/news/index.ssf/2009/07/bank_walkaways_from_foreclosed.html http://www.cleveland.com/news/index.ssf/2009/07/bank_walkawa... why fix the roof of a house you are going to be kicked out of Two reasons. (1) Because you don't like rain water poring over your head while sleeping in bed. No one wants to live in a house where rain water is poring on them. No one wants to live in a house where mold and mildew have taken root from pooling water. And no one wants to share a house with raccoons. (2) Homeowners often develop irrational attachments to the home that they "own"; that is why many people buy homes when doing so makes no economic sense. These irrational attachments may incentivize people to maintain homes when rational calculation suggests they should not. Remember, being a "good" homeowner is a key concept of many people's self-image. Doing things like fixing leaks and tending the yard may continue to matter to them even after they've decided that they're not paying another cent. Further, leaving immediately would force the bank to mark their assets to market, thereby making it more difficult for them to fool regulators and the public about the state of their balance sheet. I don't believe this claim is true. Can you cite anything justifying it? In many areas, foreclosure takes a long time because servicers and courts are overwhelmed with volume; this state of affairs benefits banks who can postpone marking their assets properly. I don't consider lowering prices to be a problem. Sorry; I misread your comment. Given how little evidence we have that this phenomena affects a significant number of people, I don't find claims that this will materially change market prices to be credible.

yummyfajitas 16y ago
Concerning bank abandonments, that's interesting. Obviously if the bank abandons the home, the homeowner can legitimately live there. As for fixing the roof simply because it makes the home uninhabitable, I don't buy it. Unless the fix were cheap, I suspect most people would probably just leave. Why spend $5,000 fixing a home you will be kicked out of, rather than just move out? Or instead of moving out, you could just put a bucket under the leak and move your bed, on the theory that you'll probably be kicked out before the leak gets that much worse. Regarding mark to market accounting, my understanding is that a mortgage is treated as a "held to maturity" asset, while a defaulted home is treated as an "available for sale" asset and must be marked to the market. Thus, the bank must mark the loss only when the home is foreclosed on (not sure when in the process this rule kicks in). And yes, it benefits banks at the expense of investors. Personally, I see value in preventing this.

yummyfajitas 16y ago

Concerning bank abandonments, that's interesting. Obviously if the bank abandons the home, the homeowner can legitimately live there. As for fixing the roof simply because it makes the home uninhabitable, I don't buy it. Unless the fix were cheap, I suspect most people would probably just leave. Why spend $5,000 fixing a home you will be kicked out of, rather than just move out? Or instead of moving out, you could just put a bucket under the leak and move your bed, on the theory that you'll probably be kicked out before the leak gets that much worse. Regarding mark to market accounting, my understanding is that a mortgage is treated as a "held to maturity" asset, while a defaulted home is treated as an "available for sale" asset and must be marked to the market. Thus, the bank must mark the loss only when the home is foreclosed on (not sure when in the process this rule kicks in). And yes, it benefits banks at the expense of investors. Personally, I see value in preventing this.