Understand Your Rights as a Renter Facing Foreclosure
Most of the attention surrounding the foreclosure crisis has focused on homeowners, but perhaps its time to turn the spotlight towards another demographic: “Renters…are overlooked by federal foreclosure prevention programs solely designed to help homeowners. ‘They’re facing many of the same issues as homeowners, but there is not attention on it…They are swept up in the mortgage crisis as well, but they are kind of the unseen victims of it.’ ”
That’s right- many of the properties implicated in the housing crisis are not primary residences, but rather rental properties. “According to the National Low Income Housing Coalition, more than 20 percent of U.S. properties facing foreclosure are rentals, and renters make up about 40 percent of all families facing eviction.” Their owners made the same misguided assumptions about their ability to afford the properties, and lenders were just as happy to provide them with mortgages. Now, many of these owners are finding it difficult to stay current on the mortgages, which has caused some of the properties to slip into foreclosure.
Other properties have been beset by equity stripping, whereby investors used proceeds from cash-out refinancing to pay themselves dividends rather than invest in improving the properties. “Saddled with oversize mortgages, cash-strapped buildings scrimp on basic maintenance. In December, New York Sen. Charles Schumer urged the SEC to investigate, calling the situation subprime crisis 2.0.”
Previously, renters lacked even basic rights when it came to foreclosure. As soon as the lender took over the mortgage, it could legally evict all tenants. On May 20, however, Congress passed the Protecting Tenants at Foreclosure Act. “Renters now must be given at least 90 days to leave. In some cases, renters will get to stay even longer. If the new owner is an investor, the renter can stay until the lease expires. But if the new owner is the lender or the home is sold to someone who wants it as their primary residence, the 90-day rule applies. During the foreclosure process — before a lender takes back the home — renters can stay as long as they have a lease and continue to pay their rent.”
On the surface, this law restores the rights of honest, rent-paying tenants, by giving them time to make new arrangements in the event of foreclosure. At the same time, it doesn’t do anything to solve the problem that rental properties facing foreclosure are caught in a sort of legal limbo, making them undesirable places to live from the standpoint of tenants. “Many banks instead do all they can to avoid taking over, including stalling the foreclosure process so they don’t become owners…Between the time the owner stops paying and the lender actually forecloses _ a process that can take up to a year _ buildings deteriorate rapidly,” said one expert.
Fortunately, many states (already) have their own laws that protect tenants. “Seventeen states require that tenants receive notice when they’ll be evicted due to foreclosure…Twelve states require tenants be named as parties to foreclosure proceedings, in order to terminate tenancies or give the new owner immediate possession rights. In New Jersey and the District of Columbia, a tenant’s lease can outlive a foreclosure, and tenants can continue to rent from the new owner of the property when a foreclosure is finalized _ often the bank.” If you’re a renter living in a home about to be foreclosed, then, you should first begin by familiarizing yourself with state and local laws. If that doesn’t yield fruit, try contacting the constituent services office of your local congressman.