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Foreclosing On A Paying Tenant...Why?

By Justin Ukaoma

Real Estate Agent with Vizion KC

December 06, 2008 01:47 PM

For the life of me I just don’t understand why a bank would rather have a property sit vacant than rent it out to a willing and able tenant.

Take a break and watch this AlJazeera interview with the Dabner family. It’s only 2:42.

What really bothers me about the Dabner’s situation is that they actually paid their rent. They were forced out of their home due to no fault of their own.

Their landlord quit paying the mortgage but continued collecting the rent month after month. When the home was finally foreclosed on the Dabner famiy was given 3 days to vacat the property.

Granted, I don’t know the Dabner family personally but if the interview is correct they could afford to pay their rent. If that is indeed the case why wouldn’t the bank just rent the property directly to the Dabener’s?

Even if the Dabner’s rent payments were only 3/4 of the monthly mortgage payment would that be better for the bank than having the property sit vacant?

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"The Lovely Wife" The One And Only TLW.

President-Tutas Towne Realty, Inc. - Kissimmee, FL

Justin...

The banks doesn't give a rats bleep about the plight of the Dabners. The banks are not in the landlord business. The banks are in the business of lending money. Now if the Dabners can qualify for a mortgage then I'm sure the bank would give a rats bleep :)

TLW...ROAR!

Dec 07, 2008 05:07 AM

DEBORAH STONE

Balboa Real Estate San Diego, CA - San Diego, CA

Hey folks

There are tens of thousands of Dabner's. I am not on the bank's side, but considering the type of workers that we dealt with at the bank when I helped clients do a modification, they don't have enough manpower to logically get a program in motion that can happen immediately. I think if we are patient (and Lord knows there is not enough time for many people) we will see programs to help the homeowners/tenants.

Dec 07, 2008 06:11 AM

Justin Ukaoma

Vizion KC - Kansas City, MO

Kansas City Real Estate Investments

Renee -- True working with the tenant before foreclosure would be ideal.

Dec 07, 2008 06:21 AM

Justin Ukaoma

Vizion KC - Kansas City, MO

Kansas City Real Estate Investments

Hey Regina your right the poor decision of these banks are part of the reason we are being forced to bail them out now. I don't think the bailouts will work in the long run. If these banks want to survive they need to change the way that they do business.

Dec 07, 2008 06:25 AM

Justin Ukaoma

Vizion KC - Kansas City, MO

Kansas City Real Estate Investments

TLW -- Sadly this is the situation we find ourselves in. Vacant bank owned properties sitting on every block and banks demanding that you qualify for a loan. I would think at some point in time these banks will need to wise up. If they offered these properties on a lease purchase program they could get a lot of these non performing assets off of their books.

Dec 07, 2008 06:34 AM

Justin Ukaoma

Vizion KC - Kansas City, MO

Kansas City Real Estate Investments

Deborah -- I agree that over time these programs will be created if for no other reason out of necessity. The banks are dying having all these non performing assets on their books. At some point in time things will have to change. Not to mention I'm sure there are a few laws that would need to be worked out.

Dec 07, 2008 06:37 AM

Bryant Tutas

Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL

Selling Florida one home at a time

Justin, This is happening all over the place and I believe the banks should have to honor the existing lease. Of course I realize this could pose a huge problem with who collects rent form the time the property is foreclosed on. Banks certainly don't have the time or manpower to do that. So maybe a better solution would be to compensate the tenant some how.

Dec 07, 2008 10:32 AM

Charles Stallions

Charles Stallions Real Estate Services - Pensacola, FL

850-476-4494 - Pensacola, Pace or Gulf Breeze, Fl.

Ok I will play bad cop. The banks cannot get into rentals, property management etc. The liability not to mention the stockholders would go nuts. That would be like uh, lets see the government getting into the banking business or worse the bailing out of companies go under. Can you imagine that, companies from every industry would start wanting a bail out, like the auto industry, steel industry, thats why our great policy makers would never do that.

Dec 07, 2008 12:06 PM

Inna Hardison

ha media group - Orlando, FL

Wordpress for Real Estate & Design, Print HaMedia Group

Justin, congrats on the well-deserved feature. Interesting comment thread, to say the least. In theory, it should be possible for banks to hold on to a tenant and the property, until they sell or even lease to own to the same tenant. Unfortunately the banks already have too many moving parts and pieces to their puzzles to successfully manage any of them, and it would be imractical to suggest that they learn a new trade overnight...Maybe a 3rd party solution would work better in this case, who knows... :-)

Dec 07, 2008 12:27 PM

Rob Kelly

RE/MAX Alliance - Louisville, CO

Louisville Colorado Realtor

Seems like this is happening more and more across the country...I can't believe that a landlord would continue to collect $$ from tenants, and still default on his mortgage obligation. That should be a crime.

Dec 07, 2008 12:48 PM

Aaron Bosshardt

Bosshardt Realty Services, Inc. - Gainesville, FL

I think in times like this its easier to cast blame then come up with solutions. I know its even easier to cast the "big banks" as the bad guys. Once a Landlord gives in and doesn't make that mortgage payment anymore where do you think the tenants rent is going? Consider that it takes at least 6 months from that point to foreclose on the unit. There is plenty of blame to go around, but the good news is right now a renter can find some great deals if they do have to move.

I dont see banks becoming Landlords as the solution. I don't think they could handle it. Tenants are protected far more favorably then a mortgage holder.

What a great blog!

Dec 07, 2008 01:56 PM

Greg Nino

RE/MAX Compass - Houston, TX

Houston, Texas

Justin,

Congratlations on the feature. You make a good point, but we can't expect Corporate America to use common sense now can we?

Dec 07, 2008 03:03 PM

Jeffrey Dolfinger

24/7 Realty Inc. - Poughkeepsie, NY

NRBA Member

Banks are not landlords, the tenants receive notice as the home has to be posted as a matter of law. In my experience the tenants ignore the foreclosure papers, do nothing, or listen to their landlord who does not tell the thruth, then act shocked when they get evicted.

I find it hardly likely that this home and these tenants never got served papers. As a matter of law the tenants or anyone in possession have to be served in a foreclosure proceeding. I Do feel for all tenants this has happened too but the tenants need to pay attention to the papers served as they can have their day in court as a party to the foreclosure action, thus protecting their rights.

Dec 07, 2008 03:30 PM

Robert Vegas Bob Swetz

Las Vegas, NV

Justin - Did I miss this one? What a great post and I see The AR Community featured it for you. I have decided to also, great job Justin!

Dec 07, 2008 06:08 PM

Mykel Martin

(909) 476-9600 ~ WeLoveSellingRealEstate.com - Rancho Cucamonga, CA

Realty Masters & Associates

About a year ago I had tenants come to me that say they got the notices, approached the landlord who assured them that the issue was being handled; when they stopped getting the notices-probably because the landlord changed the mailing address - they were sure that this was the case. That is until one morning 4 mos later around 6:30am when an REO agent came to their front door offering CFKs. Seemed the landlord had entered into a failed forebearance with the bank who continued the foreclosure process right where it stopped off---4days prior to the sale. No additional notification was required and my clients were caught totally off guard. To add further insult to injury, the bank's guidelines dictated that they could not negotiate with the tenants to purchase it until the property was entirely vacant. Even though we offered to provide them access for any inspection.

I'm sure there are a ton of stories like this out there. But for me, I'll never forget the frustration I felt trying to get through that corporate red tape for my clients who were hard - working professionals (not illiterate dead beats ). This could happen to anyone, no matter how aware you try to be. Economical circumstances set the stage every day and high tech scammers are prevalantly poised to take advantage of the unsuspecting.

Justin, You got a lot of good comments here; a lot of good suggestions and points of views. I really enjoyed following this. I still strongly believe that after all is said and done, that there are some markets, where REO Managers need to take a serious hard look at Leasing to Buy. I just left a corporate position where I've seen over 75% of some neighborhoods sitting vacant for months and months. That itself presents liability, major vandalism and an unsafe environment for the community. No they don't want to own homes, but they find themselves in the Property Management business anyway...Reimbursing for utilities, ongoing maintenance and repairs, and continually paying city violations.

At some point somebody has to decide enough is enough and start thinking outside the corporate box. I don't know...will it be the banks or the taxpayers that are tired of shelling out bailout funds for bad business practices.

Goodnight and Congratulations on this Feature post.

Dec 07, 2008 06:43 PM

Anonymous

Stanley

When the mtg crises first started I too wondered why the banks wanted to evict peoople who werre paying their rent. However, I realized that there is a reason for it. In many cases, when the home was purchased, it was overvalued and overpriced, but the buyers got a loan that was backed or Guaranteed by the Government. In this situation, if the buyer defaults on the loan, the bank will get their money from the Government since it is a Government backed loan. This is what Fannie Mae and Freddie Mac was all about. As a Realtor I find that in many cases the banks refuse to do a "short sale" because they will get paid by the government. I believe that as time goes on and the bailout money is gone, more banks will decide it is better to do a "short sale". Keeping tenants poses a property management problem as the banks are not property managers. The problem has been coming for a long time but no one in the Senate or congress was willing to do anything about it as it might not have been popular to refuse to give loans to people who could not afford them in the first place.

Dec 08, 2008 02:42 AM

#117

Kent Simpson

Realty One Group Mountain Desert - Tucson, AZ

Real Estate Is About People

This is a rough story - and we will see more of them. Its crazy times when you've got to worry if your landlord is paying the bills.

Congrats on getting a feature, Justin!

Dec 08, 2008 03:07 PM

Justin Ukaoma

Vizion KC - Kansas City, MO

Kansas City Real Estate Investments

Bryant -- Compensating the tenant wouldnt be a bad way to go about things but that does still leave the tenant out in the cold and the bank with a vacant property.

Charles -- I always appreciete someone playing bad cop I've had few on this post already. I wonder if the shareholders will think of the situation differently when they see their shares fall 80% in value. Perhaps then they will think differently about inovation.

Hey Inna -- A third party solution is probably more feasable many of the banks are already to large as its is.

Rob -- You said it what these landlords are doing is straight fruad. I think they shoud go to jail.

Bosshardt -- Thanks. Its true there is plenty of blame to go around and yes if the tenants is notified soon enough they can move to a new location. But 3 days isn't enough time. I think 30 days would work out better.

Dec 09, 2008 11:20 AM

Justin Ukaoma

Vizion KC - Kansas City, MO

Kansas City Real Estate Investments

Hey Greg -- Thanks you really can't expet corporate america to always use common sense. Perhaps they will in the future.

E Jeffery -- Good point if the tenant does recieve papers they should take them seriously. It could be a lack of education on their part. Thats's probably why they trusted the landlord in the first place.

Thanks Robert!

Thanks Mykel -- You make a good point at some point and time these banks will need to start thinking outside the box. I think the success of this post is a sign that people are ready to look at differnet alternatives. I never expected this post to get so big thank your for all of your opinons and involvment.

Stanley -- I'm sure that as this whole mortgage crisis continues banks will become more willing to look at how they can help individuals. I feel that in the long this is the best way out of this mess.

Kent -- Tell me about it. What really bothers me in addition to the Dabners eviction is that with each vacant the property the community starts to crumble. Good upstanding communites are very important both for home values and for families.

Dec 09, 2008 11:34 AM

Not a real person

San Diego, CA

If that's the Al Jazeera that I think it is, and it probably is, I'm not sure I would believe anything they say or broadcast. I think they are worse than our own propaganda machines here in the U.S.

Dec 19, 2008 10:42 AM

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