With the historic rate of foreclosures throughout the country, one question has repeatedly come up from renters, as well as the banks that held the mortgage. What happens to renters in a home that is foreclosed on?
The general scenario
The day is bright and sunny and the family of four is enjoying an afternoon together. They've paid their rent and they have paid it on time since first moving in years ago. This family is completely unaware that the landlord has defaulted on the property and that the servicer has foreclosed on the property.
This family arrives home one afternoon to find a letter addressed to 'tenants.' They are to vacate the premises within 72 hours. They stumble into a panic, calling the bank, calling their landlord, calling a realtor and not getting through to anyone. They scramble to find a new place, tap into savings for the deposit and first and last month's rent -something they hadn't counted on- and wind up wiping out that savings.
The truth
This scenario has occurred countless times across the country and renters are simply not aware that the laws had been changed to protect them. This family's situation is typical for many renters whose landlords simply kept the money they paid for rent and turned around and avoided paying their mortgage. While the renters may have a case against their landlord for fraud, they have a stronger case against the bank, or servicer, to stay in their home.
A renter cannot be evicted during the term of their lease by a lender. The lending institution must honor the terms of the lease. That means if a renter has signed a two-year lease and the bank forecloses at the end of the third month, that family has every right to remain in that home, paying their rent to the bank now -not the former landlord- until that two year lease expires.
The dilemma
Even though this is the law now, many of these lending institutions are still moving forward with their plans to drive the renters out. They are banking on these renters being uninformed and doing as they are told. Attorneys-general of several states have written warning letters to these institutions about this behavior and that it will not be tolerated and they are making efforts to inform the general public. Nonetheless, the practice continues.
Even for renters who know and understand their rights, it can be a challenge to stay in their home. With bank failure after bank failure, deeds and notes pass from one financial institution to another like baseball cards in young boys' hands. A renter could deal with one bank, showing them the lease, and dealing with endless phone calls and letters, finally reaching the point when they are left alone to live out the term of their lease, only to have that bank taken over by another and having to start the process all over from the beginning.
What can the industry do?
Mortgage underwriters and banks don't want to sit on foreclosed homes; they want to sell them, but when a long lease term still must be honored, it can make selling that home more challenging. Even so, the law has been written and put into effect and these institutions must abide by the law of the land.
The best thing for members of the housing industry can do -whether they are mortgage brokers, real estate agents, or bank managers- is to inform renters of their rights from the beginning. Being honest is one of the best remedies to a difficult situation.
If renters living in a home or a condo or an apartment pay on time, they may also show that they are responsible when, and if, it comes time for them to apply for a mortgage.
David
Comments(0)