Many survive foreclosure in style
Homeowners in foreclosure are increasingly plotting a graceful landing that leaves them not in dire straits following an eviction, but with the same or even better living standards than before they defaulted.
A study released this summer by a Federal Reserve Board discussion group found that homeowners post-foreclosure are bucking conventional wisdom that dictates they defray expenses by moving in with extended family members or into crowded apartments in poorer neighborhoods.
Instead, the report titled “The Post Foreclosure Experience of U.S. Households” found the majority of people following a foreclosure end up sharing a home with the same number of people in a similar, or the same, community.
About 60 percent live in a single-family home, albeit a rental, in a neighborhood where the education level of residents and median house values are comparable to what they experienced as homeowners. The study, which was based on consumer credit information, found another plus – work commutes decreased slightly after a foreclosure.
“In general, my clients are not left devastated by the foreclosure or short-sale process,” said Boca Raton foreclosure defense attorney Marlyn Wiener. “Once they deal emotionally with the loss of their home, they make plans for the future.”
Of course the warm and fuzzy post-foreclosure experience is not felt by everyone.
Former Loxahatchee resident Edward McManus was forced to move to Pennsylvania this year to live with his 37-year-old daughter, her husband and their two children following the loss of his 2,900-square-foot home to a final foreclosure judgment last year.
“It’s not been pretty,” the 62-year-old said.
But for others, such as Maria Streeter of Royal Palm Beach, post-foreclosure plans include staying in the same school attendance zone for her young daughter and experiencing only a small downsize. Instead of her mother-in-law living in the guest house on her acre of wooded property, she’ll move in with the family in what Streeter expects will be a four-bedroom, two-and-a-half-bathroom home.
“I know tons of people going through this, and they are making plans for when they get kicked out of their homes,” said Streeter, 46. “They are planning to rent, centering it around their kids’ schools. They are not moving into one-bedroom apartments.”
According to the study, the average household size increases insignificantly from 2.24 adults before a foreclosure to 2.27 adults after. Just 12 percent of people after a foreclosure move in with an adult 20 years their senior – likely a parent – compared to 5 percent in a control group of homeowners not in foreclosure.
Streeter and her husband bought their home in 2005 for $665,000. When he was laid off, their monthly income dropped from about $12,000 to $3,000. The home’s total market value also plummeted to an estimated $284,778, according to the Palm Beach County Property Appraiser.
The bank filed for foreclosure in July 2009. The Streeters filed for bankruptcy to buy them some time. Maria Streeter expects they have at least until the beginning of next year before they’ll have to move.
She said she has no concerns about how it will affect a future home purchase, although she knows the family will be in a rental for a while.
“My credit is pretty OK right now, and there are places where you can get a mortgage with a substantial down payment,” she said. “We are definitely optimistic about the future.”
And Streeter’s experience reflects another aspect of the study, the length of time after a foreclosure that a person is forced to move.
Study authors Raven Molloy and Hui Shan said they were “fairly” surprised to find that only about half of borrowers whose mortgage enters foreclosure have moved two years later.
The report says the delay suggests many foreclosures are never completed because of loan workouts or the sale of the home. But it also notes the length of time it takes foreclosures to wend their way through the courts in states that require a judge to sign off on a home repossession.
The average Florida foreclosure spends 676 days – nearly two years – in the courts, according to a July report from the company RealtyTrac.
“There is a rationalization that if the home is upside down and you suspect you can delay the case for more than a year, people will use the time to save up some cash, pay off bills, and make a plan,” said Dennis Donet, a Miami-based foreclosure defense attorney. “It’s human nature that you can’t change your lifestyle that much.”
Wiener said she’s had clients who have rented larger homes than the ones they lost to foreclosure. Others have parents who use retirement savings to buy homes for them to take advantage of the market’s cheap pricing and low interest rates.
McManus, the former Loxahatchee resident, had no such support system. While he was able to move in with his daughter, she too is struggling financially, he said.
Contrary to the reserve board study, his life has changed drastically with a move to a new state and into a more crowded home. In Florida, he lived on more than an acre, had a pool, three bedrooms and a library. Now, he’s thankful to have his own bedroom and that he was able to keep his three dogs.
“I sold everything I could sell and packed up the rest of it,” said McManus, who got into financial trouble after a refinance and a divorce. “It seems like the whole world is collapsing.”