It’s been almost a year since Horatio Bernard effectively lost his Baltimore row house to foreclosure and roughly 15 months since he last made a payment on his primary mortgage.

And yet to his amazement and those following his story, Bernard continues living in the home with his ailing mother without any sign of an eviction notice or word from his lender, in this case JP Morgan Chase and then US Bank.

“I haven’t paid a dime,” Bernard told me, sounding gleeful over the phone.…

There’s even a chance Bernard could get to stay in his home a lot longer. That’s because like hundreds of thousands of other homeowners in America these days, Bernard falls into what real estate experts call a shadow market, the growing backlog of foreclosures and bank-owned properties yet to reach real estate markets.

For various reasons, banks have slowed down the foreclosure process causing a reprieve for homeowners like Bernard while at the same time building a swell of foreclosed homes delayed from hitting the market. If they were to flood real estate markets at once, banks would suffer under a glut of inventory drawing down overall prices. So the banks have held back, in effect drawing out the nation’s recovery.

The shadow market today – those in distress or in some stage of foreclosure — represents roughly 14 percent of existing mortgages, says Rick Sharga, senior vice president of RealtyTrac, which compiles nationwide data on foreclosures.

“Right now what we’re seeing is delays in the entire process,” Sharga said. “It started in the fourth quarter of last year where we saw a spike in delinquencies that didn’t match a corresponding spike in foreclosures. What that suggested to us is it was taking the banks longer, for whatever reason, to execute on the foreclosure process. So we’re getting a buildup of properties that normally would have been in foreclosure but weren’t. That has continued to escalate. We’re now at record levels of delinquencies. Probably 10 percent of active mortgages are delinquent, and another 4 percent are in foreclosure.”

http://www.miller-mccune.com/business_economics/shadow-market-delays-recovery-helps-defiant-homeowners-1558