Maybe the solution would be to have an agency that oversees "renting" the foreclosed homes at a reduced rate, available only by screening income. That way the houses have occupants but they're not considered squatters because they are paying some form of rent. Or pay it by some other means, like keeping the yard and house maintained. Basically - they shouldn't get something for nothing. It encourages apathy.. but give people a way to earn a place to call home. Then maybe all parties involved could benefit.
Maybe it's too simplistic, but could it work if inspections were carried out every so often and you had to meet certain guidelines to qualify? I certainly wouldn't want to be the neighbor of a party of squatters getting into drugs and mischief. It's bad for everyone. But a struggling, working down-on-their-luck family is another matter, I think it would be nice to give them a chance to use a vacant home.
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Kim
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