Renters aren't Immune from Foreclosure Woes

Starting way back in 2006 with the publication of John Talbot's book Sell Now we have been advised by a lot of experts that this is a good time to be a renter rather than a homeowner. 

Well, maybe not so much.

Newspapers throughout the nation are reporting that renters, most of them totally innocent bystanders, are being dislocated or even worse, made homeless by the wave of foreclosures sweeping the nation.

Even when they are current in their rent tenants are frequently finding that their landlords have not been passing on the rent money in the form of mortgage payments.  And when the auctioneer shows up, tenants often find they must immediately vacate the foreclosed premises.

Both high-end and low-end properties are being impacted and it doesn't matter whether the rental is in an apartment building, a single family home or a condominium.  Any tenant in a property subject to foreclosure had the potential of being hurt.

No one really knows the extent of the problem, and it is much more severe in some state that in others.  Way back in April Harvard's Joint Center on Housing Studies estimated that at least 20 percent of foreclosures involved rental properties.  RealtyTrac reported that in October 31 percent of its database of active foreclosures had owner mailing addresses that differed from the property address indicating an investment property that might have tenants.

Those who rent in jurisdictions with very few laws to protect tenants in general find to their dismay that there are no rules at all in the case of foreclosures.  Strong tenancy states sometimes shelter leases during the process but tenants-at-will may still find themselves at risk.

Attorney Janet Portman writing in NOLO says that tenants who participate in the Department of Housing and Urban Development Section 8 housing program are a notable exception to the eviction epidemic because federal law protects their leases.  There are also laws in New Jersey, New Hampshire, the District of Columbia, and Massachusetts that prohibit eviction unless tenants have failed to pay their rent or violated other important terms of their lease.

In the rest of the country, however, tenants are not so lucky.    Often these tenants have no idea that they may have to move until they actually receive an eviction notice.

The problem became so bad in Cook County, Illinois this past fall that the Sheriff flatly refused to carry out evictions because his deputies were sick of confronting the absolutely blameless tenants who frequently answered the door.  This prompted local officials to guarantee 120 day notice to tenants before they have to move and the sheriff reinstated evictions.

A few other states are also moving to protect renters.  California just passed a law requiring 60 days notice to tenants and the Ohio legislature is debating a law which would require landlords to give notice to tenants about a pending foreclosure.  That law looks like a tough one to enforce.

Besides, it is not landlords who are evicting these tenants it is the lenders who are the new property owners. They don't want the liability or the management problems of having tenants in the properties they own or else feel that homes will be easier to market if vacant so the banks or their management companies move quickly to clear out the homes and apartments. 

Tenants may have paid a security deposit or even the current month's rent, but those went to the landlord and are usually long gone. Some landlords even continue to collect rents for months after losing the property.  Low income tenants have difficulty locating an affordable new home and the competition is increasingly tough as more and more renters are forced into the market.  A tenant also may lack the money for moving expenses or the substantial up-front deposits (security and/or first and last month's rent) often required of a new tenants.  This is a particular problem when eviction notices require almost immediate compliance, some allowing tenants as little as a week to vacate the home.

Even where tenants are allowed to stay short or even long term, maintenance is seldom guaranteed and tenants may find they either have to do major repairs themselves or live with the consequences of not doing so.  Some banks even stop paying utility bills except where health department or public safety rules prohibit it.

It would seem that banks are being extremely short-sighted when they evict their tenants willy-nilly.  If the tenants regularly pay the rent the lender is giving up an income stream, and if the tenants responsible and particularly if they are long-term they may serve to maintain the value of the property and the neighborhood, even protect the house from swatters. 

Take it from someone who now lives between two foreclosed houses, nothing goes down hill as fast as an abandoned home.