Foreclosures Effect Renters Too

Posted on January 31st, 2008 by saman

Many renters who have always been good tenants and have always paid their rent on time are being served with eviction orders through no fault of their own. These unfortunate people are victims of landlords who have defaulted on their mortgage and suffer foreclosure. For the renters the unfortunate innocent victims there is no where to turn and no longer a roof over their heads often with only a few days warning.

A survey recently commissioned by the Mortgage Bankers Association has shown that approximately one in five foreclosures involved borrowers who did not live at the address of the foreclosed property. This study also showed that investors allow a loan to default faster than first time home buyers. It is presumed that investors are loathe to “throw good money after bad” whilst a person with a mortgage on their residence will try much harder to keep the roof over their head.

Another sad statistic is that many of these first time or inexperienced investors bought several properties, and have foreclosures pending on several if not all of them. Many of these investors have been able to obtain first and second mortgages of up to 100% on these investment properties leaving them over leveraged. These loans were more of a risk to the lenders who accordingly charge higher interest rates similar to the subprime rates. Many of these investors realised after the housing bubble burst that they owed more than their investment was worth and simply walked away. This affects numerous innocent families whose only mistake was to rent property from these landlords.

The innocent victims in this sad scenario are left homeless often with no notice until an eviction letter arrives from the bank threatening a forceful eviction by the sheriff, or court action and damages or both. Many of these eviction notices only allow the tenants a very short time 10 days or so to vacate. The lenders argue they are not set up to be landlords and in order to recoup their losses they must sell the property as quickly as possible. They also argue that the borrowers have at least 90 days warning that their properties are in danger of foreclosure and that they are morally obliged to inform the tenant.

Congress has proposals pending that would if passed require a new owner to keep the existing lease in effect for six months after a foreclosure. Some states have already adopted measures that extend the amount of time tenants who find themselves in this situation may remain in the home. Tenants can go to court and seek an extension of the date of the eviction to be able to stay in the home longer while they search for somewhere else to live.

Some of the lending institutions offer the tenants a small financial payment to help with their moving costs if they agree to leave the premises quickly. This payment has become known as “cash for keys” and is believed to be in the range of $500 to $1500 dollars.