The REAL Victims of the Foreclosure Crisis: Renters

[Flagg]

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Foreclosure crisis catching renters off guard
As landlords default, renters become enmeshed in housing market crisis

By Dina ElBoghdady
updated 31 minutes ago

WASHINGTON - James Austin was stunned when a real estate agent showed up to snap photos of the house he was renting last year and casually informed him the place was in foreclosure.

Austin hastily found another house to rent in Bowie. But soon after he and his three teenage children settled in, that house went into foreclosure, too.

"Twice, can you believe it?" said Austin, 38, a consultant for a home-security firm. "This last landlord, he didn't even seem like the type who would do that to somebody. But what is the type?"

Thousands of unsuspecting renters who have been paying their rent on time are getting enmeshed in the foreclosure crisis that is plaguing the housing market.

In many cases, their landlords, often individual real estate investors, bought properties during the boom days, rented them out, then failed to keep up with their mortgages. The homes went into foreclosure, often unbeknownst to the tenants, who face disrupted lives and even homelessness.

Several localities around the country, as well as some members of Congress, are pushing to give renters more time before the new owners, usually banks, can evict them. Such a measure takes effect in Baltimore on Monday, and the District plans to launch television ads this month informing tenants of their rights.

"Early on, the focus was all on the homeowner's problems," said William C. Apgar, a senior fellow at Harvard University's Joint Center for Housing Studies. "It's only now that the renter's dilemma is bubbling up to the top."

Often, when a home is foreclosed on, lease agreements are dissolved. That means many renters can be forced to leave without much notice and typically without their deposits.

The Mortgage Bankers Association, which tracks foreclosures, does not know how many tenants have been uprooted this way. But one in five foreclosures initiated in the third quarter last year were not occupied by the properties' owners, the group said. Some of those nearly 70,000 properties may have been vacation homes. Others may have been vacant. But a large chunk were probably rentals, and as the foreclosure rate has climbed this year, those numbers have probably climbed.

How renters fare in these situations depends on where they live.

The District has some of the nation's strongest tenant protection laws. D.C. renters can stay put after a house is foreclosed on, said Julie Becker, a senior staff lawyer at the District's Legal Aid Society.

The tenant would then pay rent to the bank until the bank sells the home. If a new owner wants to move in, it's up to him or her to evict the renter, Becker said. If the owner does not move in, the tenant has the right to stay.

"But a lot of renters don't know that," Becker said. "They get a notice in the mail, usually addressed to the owner, saying they have to move out within 30 days, and they just pack up and leave."

The Office of the Tenant Advocate, an independent city agency, now receives 10 to 12 calls a week from panicked renters, said Lennie Mitchell, the agency's spokesman. Next week, the agency plans to post a form on its Web site that tenants can send to the banks informing them of D.C. laws. It plans to follow up with a marketing blitz that includes public-service TV ads.

Virginia and Maryland laws are less renter-friendly, basically leaving tenants at the mercy of the new owners once a foreclosure is final.

In Virginia, that can take up to two months as the lenders and courts deal with paperwork, said Kristi Cahoon, a lawyer at Legal Services of Northern Virginia. Until then, tenants often live rent-free.

"We advise clients to save money during that time for a security deposit and first month's rent while they look for another place to live," Cahoon said. If the lender is pressing the tenants to leave, renters could consider a "cash for keys" arrangement, in which the bank pays the renters to move.

There are laws protecting deposits, but not all landlords follow them. Tenants could sue for damages, but that only helps if the landlord has money.

LaToya Hall knew none of this when she and her cousin left the Manassas townhouse they rented.

Earlier this summer, the two received a mailed notice, addressed to their landlord, with the word "foreclosure" stamped on it in red letters. They called the landlord repeatedly but he did not respond. "Still, we kept thinking that as long as we paid him the rent, we would be all right," said Hall, 25.

She was not alarmed until two weeks later, when a sheriff tacked an eviction notice on their door. Three weeks later, she and her cousin lost hope that they would get their $1,200 deposit back.

They left. The two parted ways.

Without her cousin, Hall had no reliable ride to work, and she lost her job as a hair stylist. Without her deposit money, she could not afford to rent again. Her options ran out.

She now lives in a homeless shelter in Manassas. She is nearly six months pregnant, and she's searching for a job.

Because of cases like Hall's, the U.S. House passed a measure last year that would require the new owner of a foreclosure to inform renters at least 90 days before an eviction. If there are more than 90 days left in the lease, the renter could stay for up to six months.

Some jurisdictions are finding their own remedies, including Baltimore. Starting Monday, tenants in foreclosed-on homes must get at least 14 days notice -- by certified mail and first-class mail -- before eviction.

A week before the eviction, the sheriff's office must post a written notice on the door. "It's a good first step, but two weeks is not enough time to find a new place to live when the affordable rental market is tight," said Sally Scott, co-chairman of the Baltimore Homeownership Preservation Coalition.

That's as good as it gets for tenants in Maryland, said Kathleen S. Skullney, a foreclosure lawyer at the Legal Aid Bureau in Baltimore. In limited circumstances, a lease may survive a foreclosure, but otherwise, the new owners are not obligated to contact renters in advance. Many limit their efforts to dealing with borrowers and courts.

Once the foreclosure is approved and eviction is legally allowed, the renter may have to leave on the spot.

"The renter has no defense at that point," Skullney said. "If there ever was an overlooked and uncontemplated consequence of the foreclosure crisis, this is it."

Having been through this twice, Austin understands that all too well. He's looking for another rental, and hopes he won't land up on the street first. He sent a letter to the lender that repossessed the Bowie house, asking to stay a while, he said. "I've gotten no response."

The real victims, since they aren't the irresponsible homeowners who got adjustable interest rate loans. I was under the impression that someone who repo'd or purchased a house that was being rented out was bound by the lease. I'm shocked that isn't the case since it seems to me like you buy a house, you're buying all of the legal issues involved, including lease contracts.

[Solauren]

It can be argued that leases and the like are not tied to the property, but rather the individual you are making the contract with.

They are agreeing to let you stay in a location they own for a sum of money.

If they no longer own that location, they can't let you stay in it, now can they? That would be like saying just because the previous owner had a deal with a security company or utility provider, you have to as well.

Now, in ontario, this is balanced out by the fact a landlord can't throw someone out that is not a problem tenant and is willing to, and able to, pay the rent. (my mother found that out the hard way when she was in charge of the local Girl Guide building, and they wanted to toss out the tenants in the upstairs apartment).

However, if the owner of a building, the new/current owner and you don't have an agreement, they can say 'get the hell out', and guess what. You have to. Simple as that.

Most of the time, however, warning is given to the tenants by the owner. It's just common curtosy. For example, if Caius and I were to buy a new house that was tenated in some way, we'd inform them of the closing date, and that we'd like them out before that date.

[Alferd Packer]

Yeah, that's definitely a state-by-state thing. For example, in NJ, if a bank forecloses on a rental property, they are required by law to honor the remaining leases of the tenants. They can only evict the tenants with cause--that is, if they stop paying rent, or what have you, and take the tenant to court, and win. In addition, the bank is now obligated perform all the requisite maintenance which the landlord must perform. In effect, they are now the new landlord. I would hate to have to rent in a state where you're at the mercy of your landlord like that.

[Flagg]

It can be argued that leases and the like are not tied to the property, but rather the individual you are making the contract with.

They are agreeing to let you stay in a location they own for a sum of money.

If they no longer own that location, they can't let you stay in it, now can they? That would be like saying just because the previous owner had a deal with a security company or utility provider, you have to as well.

Now, in ontario, this is balanced out by the fact a landlord can't throw someone out that is not a problem tenant and is willing to, and able to, pay the rent. (my mother found that out the hard way when she was in charge of the local Girl Guide building, and they wanted to toss out the tenants in the upstairs apartment).

However, if the owner of a building, the new/current owner and you don't have an agreement, they can say 'get the hell out', and guess what. You have to. Simple as that.

Most of the time, however, warning is given to the tenants by the owner. It's just common curtosy. For example, if Caius and I were to buy a new house that was tenated in some way, we'd inform them of the closing date, and that we'd like them out before that date.

It could also be argued that a property ( in this case homes) owned solely for renting out to tenants is a business. And when businesses change owners, all of the contracts, debts, and other obligations remain with that business no matter that it's under a new owner.

Yeah, that's definitely a state-by-state thing. For example, in NJ, if a bank forecloses on a rental property, they are required by law to honor the remaining leases of the tenants. They can only evict the tenants with cause--that is, if they stop paying rent, or what have you, and take the tenant to court, and win. In addition, the bank is now obligated perform all the requisite maintenance which the landlord must perform. In effect, they are now the new landlord. I would hate to have to rent in a state where you're at the mercy of your landlord like that.

Which is how it should be.

[Solauren]

Actually, Flagg, it really, really depends on how you look at it.

Let me use Ontario as an example.

In Ontario, property is not a business. Even if it's property owned for the sake of renting / leasing. Property can be owned by a business, but property can not, in itself, be considered a business.

If a business is sold, all it's contracts and so forth, are of course transferred. So, if I ran a 'housing' business, and sold it, along with all the property (obviously), all the leases would switch to the new owner of the business, and they would be required, under law, to uphold them.

I believe they do, however, have the right to say 'when your current lease is up, it will not be renewed, and we'd like you to leave at that time.' That is, to my knowledge, the only condition for tossing out a leaser that is willing to stay and pay rent.

However, if a business sells it's assets, the new owner of that asset (i.e a peace of property) is not required to continue any contracts associated with it. They acquire any of the outstanding liens and other legal actions against the property, but they is all.

For example, the apartment I was living in was sold to a new company. The old company still existed, they just didn't want to run that particular building anymore (it was the only one they owned in the city, while the majority of there buildings were in Toronto).

The new owners were not under any obligation to let us stay, and everyone was worried about that. However, the new ownership sent out a letter to everyone saying 'we bought the building to continue renting it as a businss, everyone is safe, but rates may be adjusted at the end of your current agreement'.

By the same token, if I were to rent my house out as a business, and sell the house, the new owner of it would be perfectly within in rights to say
'hey, I'm not renting, the business moved and sold me this as an asset. Get out'.

Do you see the difference?

Essentially;
A new owner of a business has to honor all business contracts, as they are considered part of the business.
A new owner of a piece of property is under no legal obligation to uphold a previous owners deals as it concerns that property.
A new owner of a piece of property does become responsible for any liens and similiar legal actions against it.

A rental agreement is not a legal action.

-

It really gets down to how things are done locally.

Which make checking into these laws really important if you are renting a house or similiar, non-obviously for business (i.e apartments, condos) property.

[Broomstick]

I think a contributing factor is that many of the laws governing these situations were written in a different era.

When I was much younger rental properties were much more common, security deposits not always required, when required did not exceed a month's rent. In those days, if you needed a new place to rent you could get one quickly (I recall when I moved to Chicago and my rental agreement fell through I got a new place in two days - with no job, work history, or security deposit. But that was 25 years ago). So, in a sense, renters didn't need as much protection because moving to another apartment was much, much easier than it is today.

Things have changed.

My current rental situation is as secure as it can be these days. However, with the recent tornado having flattened 20 house and rendered a couple dozen more uninhabitable until repaired the local rental market is all "no vacancy" right now. We've got families who are homeless not due to poverty but because there are NO rental units available around here at all right now (it doesn't help two rental complexes also got trashed in the storm).

[Uraniun235]

However, if a business sells it's assets, the new owner of that asset (i.e a peace of property) is not required to continue any contracts associated with it. They acquire any of the outstanding liens and other legal actions against the property, but they is all.

For example, the apartment I was living in was sold to a new company. The old company still existed, they just didn't want to run that particular building anymore (it was the only one they owned in the city, while the majority of there buildings were in Toronto).

The new owners were not under any obligation to let us stay, and everyone was worried about that. However, the new ownership sent out a letter to everyone saying 'we bought the building to continue renting it as a businss, everyone is safe, but rates may be adjusted at the end of your current agreement'.

So if an ISP owned a fiber-optic line, signed a contract to provide internet connectivity over that line for a period of one year with guaranteed uptime etc., and then sold the line, they would no longer be bound by that contract?

[Solauren]

Not on that physical line.

However, they still have a service contract, which is a different legal consideration all together.

They'd be required to provide the service in some other, acceptable to the client, means, or refund the remaining paid value of the contract.

Which actually brings up one of the more interesting aspects of renters law; What happens when the property is sold and the renter pre-paid for several months in advance.

I have no idea how that would work. More then likely, however, it would be viewed as a service contract would be.

I have to admit, It's been a while since I went over the Landlord - tenants act in any detail. Since I've owned my house for 5 years, it's no longer interesting reading.

I just remember those specifics from above because I've been in them or assoicated with them.

[Alferd Packer]

Which actually brings up one of the more interesting aspects of renters law; What happens when the property is sold and the renter pre-paid for several months in advance.

I have no idea how that would work. More then likely, however, it would be viewed as a service contract would be.

Here in Jersey, the Anti-Eviction Act has few and very specific exceptions. With the above example, the remainder of the lease would still be valid, excepting, perhaps, if the building has fewer than three units and the landlord lives in one.

As a rule of thumb (in NJ anyway), a tenant cannot be evicted before his lease ends without cause, period. If the landlord tries to evict a tenant without following a specific procedure, he is committing a criminal act and, provided the tenant has the sense to call the police, can be subject to arrest if he refuses to allow the tenant back in.

[Darth Wong]

However, if a business sells it's assets, the new owner of that asset (i.e a peace of property) is not required to continue any contracts associated with it. They acquire any of the outstanding liens and other legal actions against the property, but they is all.

For example, the apartment I was living in was sold to a new company. The old company still existed, they just didn't want to run that particular building anymore (it was the only one they owned in the city, while the majority of there buildings were in Toronto).

The new owners were not under any obligation to let us stay, and everyone was worried about that. However, the new ownership sent out a letter to everyone saying 'we bought the building to continue renting it as a businss, everyone is safe, but rates may be adjusted at the end of your current agreement'.

So if an ISP owned a fiber-optic line, signed a contract to provide internet connectivity over that line for a period of one year with guaranteed uptime etc., and then sold the line, they would no longer be bound by that contract?

No, it means that the new owner of the line would not be bound by that contract. The old one would still be liable. I don't think you read his post very carefully at all.

[Solauren]

Interesting.

I wonder if the new owner of the building, who doesn't intend for it to be a rental (i.e a house he plans to live in), could sue the previous owner then, and under what circumstances?

i.e he was decieved about it in some way.

[Flagg]

My opinion on the matter is that the new buyer (or the bank that repo's it) of the house should be obligated to abide by the terms of the existing lease on that property. So if I just signed a year long lease and the owner sells the property, the new buyer (who knew or should have known that the property was being leased and what the terms of the lease were) should be bound to that contract. It's not like the renter is demanding a free ride (nor should one be given) but they shouldn't have the rug pulled out from under them like that.

Obviously a month to month lease wouldn't apply since the tenants can be given 30 days notice at any time that they have to GTFO.

[Flagg]

Interesting.

I wonder if the new owner of the building, who doesn't intend for it to be a rental (i.e a house he plans to live in), could sue the previous owner then, and under what circumstances?

i.e he was decieved about it in some way.

It sounds more like the renter who was evicted could sue the prior owner for moving costs, security deposit, last months rent, and the difference if the rent at the new place is higher.

[Viridian]

Interesting.

I wonder if the new owner of the building, who doesn't intend for it to be a rental (i.e a house he plans to live in), could sue the previous owner then, and under what circumstances?

i.e he was decieved about it in some way.

It sounds more like the renter who was evicted could sue the prior owner for moving costs, security deposit, last months rent, and the difference if the rent at the new place is higher.

How effective would that be though? I doubt someone getting foreclosed on would even be worth sueing. And the delays involved in filing a suit mean the money won't help the renter while they are caught out.

[Broomstick]

Interesting.

I wonder if the new owner of the building, who doesn't intend for it to be a rental (i.e a house he plans to live in), could sue the previous owner then, and under what circumstances?

i.e he was decieved about it in some way.

It sounds more like the renter who was evicted could sue the prior owner for moving costs, security deposit, last months rent, and the difference if the rent at the new place is higher.

How the hell can you get money out of someone if they're being foreclosed? It sort of implies that the prior owner is out of money.

Not to mention that a court case in the US can take years - meanwhile you gotta live somewhere...

[CmdrWilkens]

Part of the problem here is that the owner's don't have total and complete comtrol of the property, they carry title and deed but the bank holds a secured interest in the property which gives them essential veto rights over just about anything the owner partakes in (excepting those things bared by law or in the terms of the mortgage contract) with regards to the property. Obviously this is when local legislation should kick in so as to protect renters as in DC (the article mentions it) where the lesasee can continue to pay the agreed rent to the new owner through the end of the current lease. I don't see where the issue would be with enacting that in a broader pattern. I also can't see banks objecting because at least they are getting SOME money out of the foreclosed property as oppossed to having to sell it off under value in the current market, sure they don't want to become commercial landlords but they would have to maintain the prperty anyway in order to sell it so having some cash come in while they work through the sell-off has to be a bonus.

[The Big I]

On a different note is there any type of restriction on foriegners bying US properties???

[Alan Bolte]

banks... would have to maintain the property anyway in order to sell it

A number of cities have had to sue banks to force them to maintain the property, or pay for maintenance the city had done. So no, banks won't necessarily do anything to maintain the houses they've foreclosed on. I don't have any statistics as to how much maintenance is done, but as I understand it the problem is widespread.

[General Zod]

On a different note is there any type of restriction on foriegners bying US properties???

You could just Google this to find out yourself since the answer will vary from state to state. . .

[Flagg]

Interesting.

I wonder if the new owner of the building, who doesn't intend for it to be a rental (i.e a house he plans to live in), could sue the previous owner then, and under what circumstances?

i.e he was decieved about it in some way.

It sounds more like the renter who was evicted could sue the prior owner for moving costs, security deposit, last months rent, and the difference if the rent at the new place is higher.

How effective would that be though? I doubt someone getting foreclosed on would even be worth sueing. And the delays involved in filing a suit mean the money won't help the renter while they are caught out.

Interesting.

I wonder if the new owner of the building, who doesn't intend for it to be a rental (i.e a house he plans to live in), could sue the previous owner then, and under what circumstances?

i.e he was decieved about it in some way.

It sounds more like the renter who was evicted could sue the prior owner for moving costs, security deposit, last months rent, and the difference if the rent at the new place is higher.

How the hell can you get money out of someone if they're being foreclosed? It sort of implies that the prior owner is out of money.

Not to mention that a court case in the US can take years - meanwhile you gotta live somewhere...

Exactly, that's the problem. That's why I think that rental properties should be treated as a business where the buyer (or repossesser) of the property is bound by the outstanding contracts, in these cases, the lease. But it sounds like in some states what I described above would be the only real recourse (to my knowledge) a renter who is thrown out due to foreclosure has, which I think is horribly wrong.

[Death from the Sea]

I agree that the situation in the OP sucks, but why not just buy a house instead of renting?

[Viridian]

I agree that the situation in the OP sucks, but why not just buy a house instead of renting?

Well, you got to have the cash for a downpayment. You need to have a good enough credit history as well these days (now that banks are closing the barn door after the horsies have hit the state line).

You also need to be in a situation where you KNOW you will be there for a while. If your job isn't that secure, or you may need to move in a year or two, a mortgage isn't worth it. I was 33 before I got my first FHA.

[Fingolfin_Noldor]

I agree that the situation in the OP sucks, but why not just buy a house instead of renting?

Not everyone has the cash to pay upfront the deposit, and not least that not everyone has the credit history good enough to get a loan.

[Edi]

One thing that might be worth a shot in a situation like the OP is getting in touch with the bank and asking if the renter can keep on renting the apartment. If a bank is foreclosing on a property, especially a residential property as is the case here, that means they are incurring costs all the time. Getting rent money from the tenant would offset those some, and there would be someone there who is presumably going to keep an eye on the place and keep it in shape. If the place is vacant, it might attract squatters, vandalism and other sort of undesirable elements.

So from a bank's point of view, keeping an account used to funnel rent money from properties and having a system for it is little expense, good business sense and incoming revenue.

It just seems that in the US many people are used to assuming that the only option is moving out without even trying to negotiate. It might be a valid assumption in many places, but I would not assume so universally. In their place, I'd try to contact the new owner while looking for a new place at the same time.

[Darth Wong]

I agree that the situation in the OP sucks, but why not just buy a house instead of renting?

Not everyone has the cash to pay upfront the deposit, and not least that not everyone has the credit history good enough to get a loan.

Also, some people actually like the freedom associated with not owning. If you own, you're kind of stuck in place. If you want to relocate, you have to sell your old house first, which might be easy in a hot real-estate market, but a real bitch in a bad one. And if you're renting and something breaks, you call the landlord rather than shelling out money from your own pocket for repairs.