It’s been 16 months since Eugene and
Patricia Harrison last paid the mortgage on their Perris, Calif., home.
Eleven months since the notice got slapped on their front door, warning
that it would be sold at auction.

A terse letter from a lawyer came eight months ago, telling them that
their lender now owned the house. Three months later, the bank told them
to pay up or get out by the end of the week.

Still, they remain in the yellow ranch-style home they bought seven
years ago for $128,000, with its views of the San Jacinto Mountains.
They’re not planning on going anywhere.

“We’re kind of on pins and needles, but who’d want to leave when you put
this kind of energy into a house?” said Eugene Harrison, gesturing
toward a bucolic mural of mountains, stream and flowers the couple
painted on the living room wall.

Throughout the country, people continue to default on their home
loans—but lenders have backed off on forced evictions, allowing many
to remain in their homes, essentially rent-free.

Several factors are driving the trend, industry experts say, including
government pressure on banks to modify loans and keep people in their
homes. And with a glut of inventory in places like Southern California’s
Inland Empire, Nevada and Arizona, lenders are loath to depress housing
prices further by dumping more properties into a weak market.

Finally, allowing borrowers to stay in their homes helps protect the
bank’s investment as it negotiates with the homeowners, said Gary
Kirshner, a spokesman for Chase bank, a major lender. “If the person’s
in the property, there’s less chance for vandalism, and they’re probably
maintaining the house,” he said.

Economists say the situation won’t last forever, but in the meantime the
“amnesty” may allow at least some homeowners to regain their financial
footing and avoid eviction.

In the Inland Empire, an estimated 100,000 homeowners are living
rent-free, according to economist John Husing, who based that number on
the difference between loan delinquencies and foreclosures. Industry
experts say it’s difficult to say how many families are in that
situation nationally because only banks know for sure how many customers
have stopped paying entirely.

But Rick Sharga of Irvine, Calif., data tracker RealtyTrac notes that
the number of loans in which the borrower hasn’t made a payment in 90
days or more but is not in foreclosure is at 5.1% nationally, a record
high. And yet the number of foreclosures last year was 2.9 million,
below the 3.2 million that RealtyTrac economists predicted.

More evidence is provided by another firm, ForeclosureRadar, which says
it now takes an average of 229 days for a bank to foreclose on a home in
California after sending a notice of default, up from 146 days in August
2008.

“For some reason, banks are being more lenient with homeowners who are
behind on their loans,” Sharga said. “Whether it’s a strategy to try and
slow down the volume of foreclosures or simply a matter of the banks
being able to keep up with volume is something that banks only know for
sure.”

Lenders say the trend reflects their efforts to work with borrowers to
modify loans to avoid foreclosure. Bank of America “continues to exhaust
every possible option to qualify customers for modification or other
solutions,” spokeswoman Jumana Bauwens said.

Some lenders are making it a policy to partner with delinquent
borrowers. Citibank said this month that it would let borrowers on the
brink of foreclosure stay at their homes for six months, whether or not
they make payments, if they turn over their property deed. Such policies
may partly reflect the fact that lenders can’t keep up with all the
foreclosures, some say. “The mortgage lenders are so backlogged that
some people are able to slip through the cracks,” said Kathryn Davis, a
real estate agent at America’s Real Estate Advocates in Corona.

That was apparently the case for the Harrisons, who were told at various
times that their house had been sold, that it belonged to someone else
and that it was empty. “It’s been frustrating,” said Eugene Harrison.

The Harrisons missed their first payment in October 2008, shortly after
Patricia Harrison lost her job as a healthcare aide and her husband’s
part-time towing work dried up. They said they applied for a loan
modification but were told that they couldn’t receive one until they
were three months behind on their payments. So they stopped paying.

In April 2009, they received a notice warning them that their property
“may be sold at a public sale,” and in July, they were told their house
was a bank-owned property.

The bank sent a notice by FedEx in October demanding $3,000, and when
the Harrisons called to discuss this notice, they were told they had
four days to vacate the house.

Panicked, they arranged to stay with family in New Mexico and started
packing their things, filling their garage with boxes of books, camping
equipment and art. But no one came to kick them out. “We were afraid to
leave the house, afraid the sheriff was going to come,” said Patricia.

After contacting consumer advocates about their situation, the Harrisons
decided to stay put. Soon after, two men in a white pickup truck showed
up at the house and peeped in the windows, telling the Harrisons that
they thought the house was abandoned. The Harrisons suspected they were
planning to move in themselves and chased them away.

As they wade through the red tape, the Harrisons can’t imagine
abandoning a house where they’ve left their mark in the goldenrod and
potpourri rose walls, the new fixtures and stenciling in the bathrooms,
the fruit trees planted in the yard.

Although the Harrisons’ future is uncertain, industry observers agree
that the rent-free life can’t last forever. As home values climb, banks
will find it financially advantageous to foreclose on delinquent
borrowers and sell their properties.

“In many cases, particularly in California, people owe a boatload of
payments, and no bank is going to forgive that,” said Guy Cecala, editor
of Inside Mortgage Finance, a trade publication.

In Diamond Bar, the Fraguere family is finally moving on after living
rent-free for 18 months. Job loss and other setbacks prevented them from
paying their mortgage, but they say they didn’t hear anything from the
bank until a real estate agent showed up at their door last month saying
she was going to sell their house.

Sandy Fraguere wasn’t surprised that it had taken the bank so long to
ask them to move. “I don’t think they really knew what was going on or
who was there,” she said.

Next stop for the Fragueres is a hotel, where they plan to stay for two
weeks until their apartment in Chino Hills is ready for them to move in.
Their dogs are being boarded and their belongings stored until they can
retrieve them someday. The Fragueres have started saying goodbye to
their neighbors, adding yet another empty house to a block that has
already seen two other families forced to pack up and leave.

(c) 2010, Los Angeles Times.