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Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

Zombie Foreclosures On The Rise In The U.S.

Zombie Foreclosures On The Rise In The U.S.

During the quarter there were…

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Take a Squat and Prosper: Free Real Estate!

Excuse the title, but it just seemed appropriate. A new or a very old trend has emerged: At Legal Fringe, Empty Houses Go to the Needy

Save Florida Homes Inc. and its owner, Mark Guerette, have found foreclosed homes for several needy families here in Broward County, and his tenants could not be more pleased. Fabian Ferguson, his wife and two children now live a two-bedroom home they have transformed from damaged and abandoned to full and cozy.

There is just one problem: Mr. Guerette is not the owner. Yet.

In a sign of the odd ingenuity that has grown from the real estate collapse, he is banking on an 1869 Florida statute that says the bundle of properties he has seized will be his if the owners do not claim them within seven years.

The North Lauderdale authorities, though, see him as a crook. He is scheduled to go on trial in December on fraud charges in a case that, along with a handful of others in Florida and in other states, could determine whether maintaining a property and paying taxes on it is enough to lead to ownership.

Legal scholars say the concept is old -- rooted in Renaissance England, when agricultural land would sometimes go fallow, left untended by long-lost heirs. But it is also common. All 50 states allow for so-called adverse possession, with the time to forge a kind of common-law marriage with property varying from a few years (in most states) to several decades (in New Jersey).

The statute generally requires that properties be maintained openly and continuously, which usually means paying property taxes and utility bills.

It is not clear how many people are testing the idea, but lawyers say that do-it-yourself possession cases have been popping up all over the country -- and, they note, these self-proclaimed owners play an odd role in a real-estate mess that never seems to end. Though they may cringe at the analogy, as squatters with bank accounts, these adverse possessors are like leeches, and it can be difficult to tell at times whether they are cleaning a wound already there, or making it worse.

Either way, Florida is where they thrive.

Many residents of the Sunshine State have grown accustomed to living beside a home left vacant for years. Now hundreds of these mold-filled caverns, their appliances long ago spirited off, are being claimed by strangers.

"There are all kinds of ways the people try to manipulate the system to their own financial gain," said Jack McCabe, an independent real estate analyst with McCabe Research and Consulting. "And you are going to see it here because Florida is the capital of real estate fraud."

Mr. Guerette, who now faces up to 15 years in prison, insists that his business is legitimate and moral. He said he got started last year, driving around working-class neighborhoods in Palm Beach and Broward Counties, looking for a particular kind of home: not just those with overgrown lawns and broken windows, but houses with a large orange sticker from the county reading "public nuisance."

The stickers signaled owners out of touch: the county or city was unable to reach them.

Mr. Guerette filed court claims on around 100 of these properties, which appear to be in the process of foreclosure. Then he chose 20 that could be most easily renovated and sent letters to the owners and their banks -- presumably overwhelmed -- to make them aware of his plans.

Florida does not require notification. One state lawmaker tried and failed to close that loophole last year with a bill that never passed. But it hardly mattered. Nineteen of the owners and their banks did not respond, Mr. Guerette said.

So he set about fixing up the unclaimed properties. In some cases, he just mowed the lawn and replaced stolen air conditioners or broken windows; in other cases, like with Mr. Ferguson, he let tenants make improvements in lieu of rent.

Very interesting stuff and a new wrinkle in the bubble melt down of real estate.

The big issue I can see with Mr. Guerette is the following: he is not squatting in these homes, he is renting them to others. Secondly, he does not have the right to rent the properties because he's not the owner and he won't have ownership for several years. It will be interesting to see how the court handles his particular case because he's taking the squatter's rights issue to a level that I'm sure was never intended.

If I were his tenant, I would stop paying rent and squat myself. I doubt he's got any landlord rights because he doesn't have the right to engage a lease contract on a property he doesn't own.

Besides that, we should expect this trend to continue for a couple reasons:

1) In some pockets of the country like Florida and Detroit there's tons of dilapidated properties that are easy targets for squatters. With the foreclosure nightmare, there are also plenty of vacant homes and tracking down the owner could be impossible.

2) The Main Street economy has left millions virtually broke and squatting provides a free place to shack up, and a continued weak economy with no job growth should keep this trend alive for quite some time.

3) If unemployment benefits do not get renewed for those who have been on it for long periods, this trend could really take off.

4) As long as foreclosures remain elevated, squatters can just jump from one house to another when the owner finally comes to the table and kicks them out.

Critical Mass: Imagine how big this problem could become if real estate fell 15-20% from current levels and 50% of the country became upside down on the their mortgage. A huge bulge in foreclosures could follow and create millions of vacant homes to squat.

I'm skeptical someone is actually going to get a free house because of the time frame it takes to achieve ownership. The exception is at the bottom of deflation in areas where blight and excess real estate is overwhelming and it has no value. Areas of Detroit are very close on a relative basis to zero valuation.

The trend in America is slowly becoming living in a house free of payment. Whether you are in the foreclosure process not making payments for 12-24 months or now squatting for free, it's the new American way.

Don't we all want a free palace to live?

Hope is all well.

 

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