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Homeowners In Foreclosure Move Out At Last Minute

More homeowners are waiting until the foreclosure sale to move out of their homes than they did last year, taking advantage of the system to buy them more time and sometimes get cash out of the sale, a number of foreclosure buyers have reported.

Eric Peterson, a longtime buyer of foreclosure homes and manager at Sacramento-based Praxis Capital Inc., says most borrowers are still in the homes when they come to take over. Last year, he said, homes were usually empty by the time the auction took place.

Peterson says borrowers have become more savvy, particularly when it comes to the “cash for keys” arrangement with lenders. This is where a lender pays a borrower between $1,500 and $3,000 to move out of the home in time for the foreclosure sale.

Often, experts believe, these borrowers have refused short sales because they found it too complicated or did not see the advantage over foreclosure. So instead of opting for a "dignified exit," they simply watch the foreclosure unfold and leave when they are told to.

This can mean greater losses in the near future, according to foreclosure specialists. Although lenders lose money in short sales, they lose as much as 20% more in foreclosures, since they don’t have a lot of control over the selling process.

A report from property acquisition firm Equator LLC shows that the trend is more common in low- to middle-end properties than on the high end, the opposite picture from last year. Borrowers with less means are now learning how to make the system work for them, even if it’s just for a few thousand dollars.

Short sales have become one of the most popular foreclosure alternatives in recent years, especially as loan modification efforts failed to reach as many borrowers as planned. The Home Affordable Foreclosure Alternatives (HAFA) program has streamlined the process and helped thousands of homeowners avoid foreclosure since its launch in February 2010.