James Wexler wrote a post Stop Foreclosure Evictions - the innocent victim of the housing crisis, in which he discusses the fact that innocent renters are being evicted because even though they have paid their rent, their landlord didn't pay the mortgage payments.  Once the property is foreclosed on, the innocent renter is evicted, and the landlord gets to keep the rents that were paid to him.  James promotes simply stopping all evictions.  This is a noble thought, but because of my legal background, I tend to look at the due process issues involved.  In California they are usually given 30 days to move, but that is still short notice.

If all such foreclosure evictions are prohibited, would a renter simply be able to avoid eviction by claiming not to have known about the foreclosure?  Must there be a full trial in every case to let the renter prove whether he indeed paid his rent to someone who may claim he did not?  If there is no notice requirement, there will be some who take advantage and others who will be advising them on how to take advantage.

It is unfair to the lender to force it to keep the renter in place and become the landlord for some unknown period of time.  It is unfair to the renter not to know for sure how long the moratorium will last or where to make rent payments in the meantime, and unfair to the landlord if he is trying to cure the default while the renter suddenly stops making rent payments to him.  It is a very complicated issue.

When a lender is going to start foreclosure with a Notice of Default, he must give written notice by certified mail to the borrower and any second mortgage holder or lienholder.  If the borrower can't cure, there are instances (depending on your state law and the timing) where the second holder can and does cure, so he doesn't lose his security.  When those notices are mailed out, what would you think of another notice going to the renter? 

This could either come from the lender or from the borrower, but should be mandated by law, so the renter would at least know there is a risk in continuing to pay rent to a defaulting landlord.  And if the renter could keep making the rent payments after that fact, but make them to the lender directly or into a trust account, the landlord might still have an opportunity to bring the loan current before it went all the way through foreclosure, and the rents would have to be used for that purpose rather than other personal expenses of the landlord.  If foreclosure is completed, those funds could go to the lender to offset the amount owed, or could act as seed money for the renter to relocate or to use for down payment to buy a property.

Perhaps under some circumstances he might even be offered an opportunity to buy the house he has rented at foreclosure instead of suddenly being told after the fact that his landlord no longer owns the property and he must leave his home in a short period of time.  This would give the renter a lot of time to decide what to do (from Notice of Default to foreclosure takes several months) instead of a surprise eviction after the foreclosure has taken place. 

The early giving of notice to the renter would give the renter legal right to perhaps give notice that he intends to leave before the natural term of a lease, without penalty.  In other words, if he is under a 1 year lease that still has 6 months to go when he receives the notice, he should be able to give 30 days' notice of intention to vacate the premises rather than continuing to pay rent that might not be going where it should.  And he wouldn't have an eviction on his record that he would have to explain in order to be accepted by a new landlord.

Much of my idea is not completely formed, but if states adopted something similar, this might be a solution for everyone that would help the innocent renters while also helping the banks who are troubled sue to the large number of foreclosures.

Imagine the happiness of the renters who could be converted to first time homebuyers or at the very least be assured that they would not be hit with a surprise eviction.

And instead of so many REO Realtors having to be the ones who often have to see to moving unhappy renters out, some of those  Realtors could be helping these renters buy their homes.

What do you think?