I have a friend that no longer pays their mortgage but for some reason the bank hasn't foreclosed and the person is living in the home free. Why are banks refusing to foreclose on some homes, basically walking away from them? Are they doing this to avoid having to recognize the loss on the value of the home?

There could be a number of reasons why the bank is doing this. What is most likely is that the bank is currently overwhelmed with the number of properties they have taken back. Each property that is bank owned requires manpower to manage, paying utilities, property taxes, making sure the property is maintained, and coordinating the upkeep on it, etc. My assumption is that the bank feels that right now it is better off letting someone live in it for free, and maintain it, than to have to hire and train additional staff, then foreclose, then have to manage another property. The bank hasn't 'walked away' from the property, trust me, they are keenly aware that the loan is not being repayed. I would imagine once they have the capacity to handle the additional property they will foreclose. This is something that is happening more in the harder hit areas, your friend is not the exception. Eventually the bank will foreclose and he will have to leave.

 

AC

Antonio gave a great answer. 

The bank hasn't refused to foreclose, they have chosen to not foreclose at this particular time.  The bank has not given up the right to foreclose at some point in the future.

If the bank were to walk away from the home, they would show a larger loss because they would not even have the proceeds from a foreclosure sale to offset the amount that they had lent to your friend.

Good answers but I disagree.  This is all about SOLVENCY.  The big banks are INSOLVENT, period. 

Banks are sitting on these homes, refusing to foreclose because if they do foreclose they will have to show the true loss on the home.  If they don't foreclose they can continue to mark the assets at the loan amount.  If they foreclose, the asset must be marked to market value, showing the loss and exposing the truth - big banks are BANKRUPT.

anyone care to make the arguement of "hostile encroachment" ?, and if the banks do not act are they implicit in the encroachment.