New evidence is out from RealtyTrac (and CNBC) that the banks ARE sitting on homes that…in a normal world…would of been long since been sold as REOs. In other words, the ‘Shadow Inventory’ is growing….

Nationwide the average defaulted owner is staying in their home, PAYMENT FREE for 400 days. Lets be clear what this really means. Non-paying owners are keeping possession of their homes (safe to assume they are living in these homes) for 400 days after the NOD is filed. What isn’t known is how many months of payment free living they have enjoyed leading UP TO the NOD being filed. We hear from HREU students nationwide that they have owners who have made NO payments for 12+ months even before the NOD is filed. All in, that means the scrappy defaulted owner can live payment free for 500+ days.

No wonder that we are hearing from HREU students that owners are refusing lenders offers for cash at close of their short sale. Defaulted owners have done the math. They know that they can live for months…even years…in these properties without making payments. Just this morning I received 2 emails from students telling me that they had owners refuse bank offers of  $20-30,000 in exchange to list and sell their homes as short sales.

In some states, its even more dramatic. New York and New Jersey defaulted owners keep their homes for 900 days (remember, this doesn’t include the pre-NOD ‘free time’.) Readers, that is at least 2.5 years of living in a home for FREE. Florida its a little over 600 days and California 330 days.

Last year we coined the term…The Constipated Python. That metaphor is a great way of explaining the mess the housing industry is trying to ‘digest’.

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  • Great post Robert.  Add to no payments, insurance, or taxes, and now Cash For Keys!  I just had a lender offer $6000 for a two week move out to a brother of the investor/owner that had been there rent free for months and the average rental in the area is $1200 so he got anther 5 or so months thanks to the TARP money us tax payers caughed up.  But under no circumstances will we give loan modifications to those who pay their payments on time I am thinking about writing a new book called "The Smuck Syndrome" for folks like me.
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