Has America Become a Nation of Squatters?

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Today, squatting is a bit different than it was in the 1880s.

Before the recession, “squatting” brought to mind Appalachian-style family feuds, wherein the Hatfields camped out for years on end, shotguns cocked, on a remote corner of the McCoy’s acreage., or maybe starving artist types making their homes in neglected former industrial buildings of lower Manhattan.

It’s also a legal concept that has stunned generations of law students: the idea that, in many states, even in 2011, someone with no other legal right to a property could, if a few technical conditions were met, gain title by openly and continually trespassing there without the owners’ permission. As a Berkeley law student first learning of “adverse possession” myself, I was amazed  to begin noticing metal plaques in the concrete around campus granting permission to whoever would pass thereon, which was the University’s old school and effective method of avoiding ownership claims by squatters.

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But just as the recession has put a new spin on the term “underwater” and added “staycation” to our lexicon, it’s created a new class of squatters. After all, squatters used to simply park themselves on a property they’d never paid for and gain rights to it over time by meeting the requirements for a legally sanctioned title snatch and paying property taxes on the parcel. And the recession has certainly given rise to its share of this flavor of squatters. Most real estate brokers who list foreclosed homes these days can tell stories about having to call local cops because a homeless person has moved into a vacant property owned by the bank. There are even many reports of “mansion squatters” trying to snatch legal ownership of foreclosed luxury homes, most notably in the Seattle area.

But next-gen, recession-created squatters generally operate in reverse, flipping the legal concept of adverse possession. They tend to be homeowners who used to pay their mortgage, property tax and insurance, but then stopped paying the mortgage, either because their home is worth far less than they owe on it or because they are simply unable to make their payments due to, say, a job loss.

How many people are now squatting in homes they used to live in legally? It’s hard to say exactly, but the Mortgage Bankers Association reports that 5.4 million mortgages are presently delinquent or in some stage of foreclosure. And real estate data company Housing Predictor projects that 10 million foreclosures will take place between now and 2012. Some of these defaulting homeowners simply abandon their property. But the majority continue to live in the properties, payment-free, for many months, and even years, until they lose the legal right to reside there. Add to that the scores of tenants who (some would say justifiably) stop paying rent when they realize their rental property is in the foreclosure process. The bottom line is that the ranks of “squatters” today likely runs in the multiple millions.

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Some argue that these squatters at least take care of the properties better than the banks do, ameliorating the problems of blight, vandalism and crime that plague unoccupied foreclosures. Maybe so, but it’s hard not to wonder if this phenomenon is also affecting the housing market in a deeper, and less healthy, way.

I suspect this harm will manifest most evidently in consumers‘ mindsets, as widespread squatting threatens to upend basic, important social beliefs about the inherent rightness of paying for the right to live in a place. If consumers perceive that a primary advantage of being a homeowner is that you can stick around for years without making a payment, strategic default and foreclosure rates might never decline back to their pre-recession rarity.

There’s no danger that these next-gen squatters will regain title by staying put, as their predecessors did, because most have the banks’ or the homeowners’ permission to reside on the property, at least until they are evicted. The real danger is to our social norms and financial belief systems which, in turn, threaten a lasting recovery and future prosperity.

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