Tenants victimized by foreclosures
Many renters have no clue that their homes are in any danger at all - until a sheriff comes to evict them.
NEW YORK (CNNMoney.com) -- Imagine faithfully paying your rent month after month, and then having a sheriff at your door telling you that your family has to leave - immediately.
While foreclosures have been hammering homeowners for months, they can be even more tragic for tenants in good standing who are blindsided when their landlord defaults on the mortgage.
"Tenants are the ultimate victims in these cases," said John Taylor, president of the National Community Reinvestment Coalition (NCRC), a community development advocacy group. "Most have been paying their rents. They have no day in court, and in most states they have no recourse."
The number of foreclosure rental victims is soaring. This year bank repossessions of multi-unit homes with two to four apartments jumped 150% to 22,386 through the end of October, up from 8,955. And these statistics don't cover every case of renter eviction; many single-family homes facing foreclosure are also rentals.
In the Chicago area, foreclosure tenant evictions have tripled during the past two years to nearly 4,000 annually, according to the Cook County sheriff, Thomas Dart. It got so bad that he suspended all tenant evictions several weeks ago. He won support from the Cook County Circuit Court, which ordered that tenant rights be safeguarded.
"We were seeing numbers of foreclosures like we had never seen before," he said. "It was alarming. There was chaos in the streets. In house after house, we came across people who were legally supposed to be there, who were paying rent and who had no notion a foreclosure was going on."
Sheriff Dart served eviction papers recently on a couple living in a three-unit building, nicely kept, for more than five years.
When the bank foreclosed on their landlord, it never sent anyone out to inform the tenants that they would be removed from the premises. The landlord lied to the couple, telling them, yes, there had been some trouble but it was straightened out. Just keep sending the check. He continued to collect the rent when he no longer owned the house. The couple was stunned by the eviction.
Another eviction that Dart served involved a couple with four kids. They were still paying rent and had a new lease that was signed and notarized after the foreclosure was final.
The problem, besides greedy landlords, is that lenders are overwhelmed with the flood of foreclosures and don't always notify tenants when their homes are in foreclosure.
State laws on tenant foreclosure victims vary but few give renters much protection, according to attorney Don Lampe, who has testified before Congress on mortgage issues. They generally don't require that servicers inform tenants that there's a foreclosure action on their home. The servicers are only required to notify tenants of the actual eviction date, which is often very late in the process.
"You often don't have a lot of lead time," said Lampe. Sometimes renters don't hear a thing.
"The banks are not trying too hard to find out the tenants' names," said Zoe Cronin, an attorney with Greater Boston Legal Services, which has represented 174 tenant eviction cases so far this year. "Banks aren't going out to the house. They just put 'All other tenants' on the eviction form."
Without the actual names, the tenants often go un-notified. Sometimes they can be hard to locate during working hours or absent for periods of time. Cronin had one client who was an elderly stroke victim in the hospital when she was threatened with eviction.
Dart's policy now is that lenders have to do some groundwork if they want to evict renters. But lenders are still not always playing ball. His office has been asked to execute 110 evictions over the past couple of weeks; it co-operated in only three cases because lenders hadn't done the required notifications.
While there has been a lot of debate in Washington, D.C. about how to help troubled mortgage borrowers, the issue of how to aid renters caught in the housing crisis crossfire is only starting to emerge.
Some in Congress have urged the Federal Housing Financing Agency (FHFA), which has taken charge of the two government sponsored mortgage giants, Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), to speed up reforms it's making regarding tenant rights. The aim is to let renters in good standing stay in their homes after a foreclosure.
The $700 billion Emergency Economic Stabilization Act, which passed in early October, requires all federal entities, including Fannie Mae and Freddie Mac to allow bona fide tenants "where permissible" to remain in their homes until their leases run out, as long as they pay their rents.
But, according to Amy Marx, an attorney with the New Haven Legal Assistance Association, Fannie is not adhering to the new law. Her organization is now threatening to take legal action against Fannie if it does not immediately cease evictions against tenants living in properties foreclosed on by the company.
"Fannie Mae is presently emptying out all the properties it has foreclosed on in Connecticut," said Marx. "This is having a terrible impacts on people and communities."
The FHFA reported to Congress last Tuesday that the two companies were moving forward. Freddie says it is transitioning from a policy that favored evictions to one that allows tenants to remain under some conditions.
Fannie spokeswoman Amy Bonitatibus says its policy has always been to try to work out a suitable arrangement for tenants.
"In cases of tenants who occupy a foreclosed property, Fannie Mae typically offers financial assistance to help those tenants relocate" she said. "For those who wish to remain in the house, we will sometimes work out a lease agreement."
Fannie says it has started a couple of pilot projects in the Northeast in which it hires management companies to run bank-owned buildings while it tries to sell them, letting tenants stay put.
Some states are also trying to enact more protection for tenants. In North Carolina and New York most renters are now legally entitled to stay after foreclosure under the terms of their leases.
What would really help renters of course is a drastic reduction in foreclosure filings, which rose 76% during the three months ended September 30, compared with a year earlier.