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Take Back the Land Rochester hits the Financial Times of London

Squatters add to foreclosure delays

By Alan Rappeport in New York
Published: February 6 2011 19:45

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Rachel Nartin spent five years homeless until an advocacy group in Rochester, New York, helped her find shelter beneath the roof of a foreclosed home last year.

Now she chips in for utilities and has helped make repairs on the dilapidated two-story home, but expects an eviction notice from the bank any day.

“At least I had a chance to get back on my feet,” Ms Nartin, 29, said. “Just letting these houses sit empty while there are people freezing to death on the streets is not ethical.”

Ms Nartin, who shares the house with four others, is one of a sizeable number in the US living without permission in properties that are left vacant for months or more after being seized by banks.

The trend is slowing down the recovery of the US housing market because it is tying up the foreclosure process and deterring potential investors and buyers who do not want to face court battles to remove illegal residents or squatters.

“It’s gumming things up and is the last thing that a housing market that’s already on life support needs,” said Rick Scharga, vice-president of RealtyTrac, a foreclosure data firm.

“There have been more cases about this since the robo-signing issue came up because people are using it as justification that if the banks aren’t playing by the rules, why should they.”

Foreclosures have been drawn out by state probes into the foreclosure practices of US banks, which have been accused of “robo-signing”, or processing foreclosure affidavits without verifying their accuracy.

Property rights became even more muddled after a decision last month when a Massachusetts judge voided home seizures by Wells Fargo and US Bancorp, ruling that they failed to prove they owned the mortgages when they foreclosed.

RealtyTrac forecasts a record number of foreclosures in 2011, and bank seizures have helped plunge the US homeownership rate to a 10-year low at the end of last year, according to the latest census data.

Mr Scharga said in some of the hardest hit housing markets the time it took between an initial delinquency notice and a foreclosure had doubled in the past two years.

At a recent foreclosure auction in New York City, most of the 140 homes available required bidders to take responsibility for taking possession of the property. For buyers, removing illegal residents presents additional costs and risks.

“It’s a good opportunity, but the risk is that people might be living there and you have to get a lawyer and marshals and it gets tough,” said George Seretis, a real estate investor who passed on two properties at the auction.

The process of removing squatters is complicated by a law known as “adverse possession”. This varies by state, but gives ownership rights to a person who possesses a property for an extended period.

“This isn’t Russia where you can show up with a shotgun and some guys and remove these people,” said Charlie Cooper, a real estate investor who owns 17 properties in Pennsylvania’s Poconos. “These people have rights.”

Michael Pines, a lawyer in southern California, has been advising some of his clients who have been evicted from their homes to break in and reclaim the property.

He argues that more than 80 per cent of home loans are faulty in some way, and that in cases where the loan origination was improper, criminal charges for repossessing the property will have to be dismissed.

“In order to convict for trespassing, prosecution has to prove beyond a doubt who owns the property,” Mr Pines said. “If you are evicted illegally, they are the ones trespassing.”

Banks did not comment on their dealings with squatters. Brad German, a spokesman for Freddie Mac, the mortgage lender, said that when they occasionally were faced with squatters, brokers had been able to regain access to the properties.

In Rochester, Ryan Acuff is a member of Take Back the Land, the national advocacy group helping homeless people such as Ms Nartin to find and relocate to foreclosed homes as a matter of principle.

“The bail-out of the banks kept the banks solvent and functioning, but there wasn’t any real bail-out of the people,” Mr Acuff said. “We are challenging the law to make a larger point.”