Fannie Mae is finalizing a national policy that will allow tenants to remain in their homes even if their landlord goes into foreclosure -- a landmark decision for tenants.
The policy will be in effect Jan. 9, Fannie Mae said Sunday, and reflects growing pressure on the mortgage company from a legal-aid group that threatened to sue over recent evictions. The company said it will also ensure its current holiday moratorium on new evictions is being followed until the new policy takes effect.
In late November Fannie Mae and Freddie Mac said they would suspend tenant evictions temporarily during the year-end holidays. An advocay group in Connecticut said that despite the pledge, Fannie Mae was proceeding with more than a dozen new eviction cases. The advocacy group said the evictions would violate legislation passed earlier this year to rescue the two mortgage-finance giants that required them "to permit bona fide tenants who are current on their rent to remain in their homes under the terms of their lease."
Freddie Mac hasn't announced a similar policy reversal, though a spokesperson said they are "currently evaluating additional actions." Holder's of sub-prime loan probably not has a similar policy as well. Those mortgages are held by many different investors. Getting the invoestor to agree on a policy is unlikely. Fannie Mae's previous policy of "cash for keys" did not cover the expenses of tenants locating another home. The new policy is a welcome relief to tenants, allowing them to stay in the homes.
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I don't want to sound too critical of Fannie Mae here but I think that tenants may be lulled into a false sense of security by the proposed plan from the mortgage giant.
As I see it, Fannie wants to sign new month-to-month leases with tenants after the foreclosure is completed. Then they will put the property on the market for sale. Once the property sells the new owner, in most places, will be able to give the tenants 30 days notice to vacate.
There is no perfect solution to this problem and Fannie's proposed plan is no exception. In my opinion the best solution would be a combination of prior notice and a reasonable period of stay after the foreclosure.
The biggest problem for tenants in most areas is the uncertainly of the situation. The landlord owns the property until the foreclosure is complete and in most areas the tenant has no remedy for a landlord in default. If the tenant stops paying the rent while the landlord is in foreclosure the landlord can evict the tenant. If the tenant tries to void their lease during a default the landlord can damage the tenants credit. In most cases the tenant has to stick it out until the foreclosure is completed. Then in some states the tenants only has a few days to vacate the property.
At RentalForeclosure.com we try to give tenants the advanced notice to prepare for the pending foreclosure. Now we need the reasonable period of stay for tenants after the foreclosure. California requires lenders to give tenants 60 days to vacate the property after the foreclosure is complete, in Arizona the tenant has 5 days.