Delinquent Homeowners

En español | The last time Ruben Martinez paid the mortgage on the modest Staten Island, N.Y., home he shares with his wife, daughter and grandchildren, George W. Bush was beginning his second term as president in 2005. Boomers Charles and Jill Segal stopped paying their loan nearly four years ago, even though they continue to live in their five-bedroom home in Palm Beach County, Fla.

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Foreclosures in some states can take years to process. — Getty Images

And Florida retiree Charles Light is still holding on to his three-bedroom home in the scenic Gulf Coast community of Cape Coral, as well as a five-bedroom residence in the town of Bartow. It's been almost two years since he made a mortgage payment on either one.

With the nation's foreclosure system all but paralyzed after an avalanche of loan failures and "robo-signing" scandals, many delinquent homeowners are defying lenders and staying put. Instead of packing up and slinking away, they're living for free, sometimes for years. They're hiring lawyers to challenge their cases, and many are winning reprieves or causing the process to stall even further.

"They go into a perpetual state of limbo where nothing happens or the case goes very slowly," says Light's attorney, Mark Stopa.

The extraordinary delays are hampering hope of a housing market recovery and pushing this year's troubles into next year, says Rich Sharga, senior vice president at RealtyTrac, which tracks foreclosure data. The logjam also has kept thousands of new cases from being filed.

"The system's broken," he says.

With about 4 million loans currently in some stage of delinquency, lenders and lawyers say nonpaying owners are living in moderate to lavish communities across the country.

Often, banks are not pushing to go to foreclosure. They seem to be in no hurry to add to their swollen inventory of repossessed homes, which now stands at a near record 862,000 nationwide.

Also contributing to the gridlock is intense scrutiny by regulators stemming from the scandals in which banks cut corners and falsified documents to rush homeowners to foreclosure. Until their cases are resolved, owners can legally remain in homes they would've lost long ago in normal times.

"The [banks'] paperwork was so messed up in so many cases that it's mind-boggling," says Florida lawyer Peter Ticktin, who represents the Segals. "The delay is huge."

Americans harbor mixed feelings about their nonpaying neighbors. Some are sympathetic to their financial plight. Others see them as freeloaders who are gaming the system, an insult to the millions of working homeowners struggling to pay their mortgages on time. In Miami, Francisco Permuy and other residents of his condominium building face higher homeowner association fees to cover for nonpaying owners who continue to live in the building. "Some people are very angry," he says.

Next: Living for free will result in higher interest rates. >>