Q: I’ve heard the term squatter’s rent used many times. Can you tell me what is the definition of squatter’s rent?
A: Squatter’s rent is the money someone saves up by not paying their mortgage. In many states, it is taking one year or more for someone who is behind on their house payment to be formally evicted or go through the process of foreclosure or a short sale. During that year or so, an individual or family that is not paying the mortgage may be strategically saving money for their next apartment, home or to payoff other bills. This saved cash is known as squatter’s rent. Squatter’s rent is a major consideration when someone is considering walking away form their home or doing a strategic default on their mortgage. Before you decide to walk away from your home, make a strategic default, or amass a pile of squatter’s rent, you should consider the impact that such impact could have on your credit score.