After Foreclosure: Living in a Bank-Owned Home

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As we make our way toward the end of the 2016 calendar year, we’re creeping up on the 10 year mark of the start of the U.S. housing crisis that began in 2007. Many states in the nation have recovered nicely by this point, with some reports saying that the housing market is the best it’s been in a decade.

In New Jersey, though, foreclosures are still a significant problem. The garden state has yet to find solid footing in the wake of the housing crisis (also called the housing bubble), and even nearly a decade later is still a state with one of the highest foreclosure rates.

Although it appeared as if things were moving in the right direction for New Jersey’s foreclosure situation this year, as we reach the end of 2016, the recovery rate has slowed to a crawl and nearly 13,000 new foreclosures entered the court system in the final quarter of this year alone. Because of the long, mandated legal foreclosure process in NJ, this new influx of foreclosures has once again caused a significant backlog in foreclosure court. We’ve taken a step backward in our recovery from the housing crisis, with Atlantic, Ocean and Essex counties  currently showing the highest numbers of new foreclosure filings.

One of the effects that the decade-long real estate recession has had on New Jersey is neighborhood blight in areas hardest hit by foreclosure. In reference to the housing market, blight is the dilapidation, deterioration or decay of certain towns and cities (or sections of those towns).

The reason for this phenomenon is that so many foreclosed homes are not being sold at auction. Since New Jersey hasn’t fully recovered from the 2007 crisis, buyers and developers are still wary about purchasing questionable properties, especially in areas that are downtrodden or showing potential signs of blight.

When a foreclosed home fails to sell at sheriff’s sale, the lender or bank retains ownership of the property. These homes are called REO: “Real Estate Owned.” Often the term “Bank owned” is used interchangeably.

REO properties are often empty for significant periods of time, which can lead to vandalism, drug activity, disrepair and squatters. All of these factors combine to create blight, especially when several or many homes in a neighborhood become bank owned and uninhabited.

Smart lenders realize the depreciation that occurs when a property becomes vacant – which means if you are at the end of your home’s foreclosure process and your home becomes bank owned (or REO) – you may be able to continue living in the home until your lender can sell it.

While not all lenders are amenable to giving former homeowners a “free ride” living mortgage free in a home that is now an REO property, some lenders acquiesce to the fact that a cared-for property is much easier to sell than one that has been destroyed by defacement and crime.

Your NJ foreclosure attorney can talk to your lender on your behalf if you are too nervous to do it on your own. If your lender is not open to letting you live in the home scot-free, there may be room to negotiate a rental agreement. Naturally, your attorney will request a monthly rent amount that you can afford. Lenders often realize that getting some money is better than getting no money at all.

If and when your lender does sell your home to another buyer, you will be given eviction notice. At that time, you’ve reached the end of the line in your REO home, and will be required by law to vacate the premises, usually within 30-60 days. So, if you are lucky enough to continue living in your home after its foreclosure sale, put away as much money as possible each month, and scout out a new living arrangement that you can afford. When the time comes, you’ll have a nest egg and hopefully your financial future will look much brighter.

Image credit: Orin Zebest

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