A record 2.8 million U.S. properties began the foreclosure process in 2009 (according to ForeclosurePulse.com). It appears that there's no end in sight. And, while the focus has been on families losing their residence, there's a subplot that's gone largely unnoticed. Innocent renters are often hurt when banks foreclose on their landlords.
Nationwide it's estimated that about one third of properties that are being foreclosed are not owner occupied. And, while some of those are second homes, many are rentals. It's probably pretty safe to say that at between 25 and 30% of foreclosures are occupied by a renter. So about 750,000 renters were in foreclosed units last year.
What does foreclosure mean to the renter? If the bank forecloses on your landlord they take over the property. Their goal is to protect their financial interest. Sometimes that hurts the renter.
Historically, banks wanted the owner to vacate a foreclosed property. That meant the renter, too. So even renters who had leases were suddenly being thrown into the street. Without any legal recourse.
In May, 2009 the "Protecting Tenants at Foreclosure Act" became law. The main part of the law guaranteed that tennants could stay until their lease was up. Those on a month-to-month get 90 days.
Today, in part because of the law and in part because it's bad business to chase away paying renters, banks are allowing more tenants to stay in foreclosed properties. Often they'll use a management company. Some managers are more responsive to renter needs than others.
So what can a renter for protection? Unfortunately, even with the new law, their options are fairly limited.
It's hard for a renter to determine if his current or potential landlord is in financial trouble. There is one website that can check an address for you. It's not 100% certain. They only report what their records show. But, you'll want to avoid any properties on their list.
In some counties, court records are available online. Checking your county's website can be a real eye-opener. You can check your landlord by name (or by company name). Look for any pattern that shows financial problems. Make sure you look for liens and mortgages against the property you rent.
If the bank does notify you that your landlord is being foreclosed, contact the local housing agency. They'll be in the best position to tell you which local, state and federal laws apply to your situation. Among other things you'll need to know who should get your rent checks and who to call for a leaky faucet.
As a tenant you can sue the former landlord for lost deposits and rent. But the small claims process can take months. Plus you're trying to get money from someone in foreclosure. The odds of getting your money back are pretty long.
The trickiest time for a renter is when the landlord expects to be foreclosed. Some will collect rent and make no effort to make their mortgage payment. They'll also avoid doing any maintainence. This can go on for months. That's why it's a bad idea to prepay your rent in this economy. If you have next month's rent available, better to put it into an insured savings account until the rent is due.
If you're looking for a rental, beware of landlords who seem overly anxious to get you into their unit. Some are attempting to use renters' first/last/deposit to keep themselves afloat financially. Reputable landlords will check your credit and references. Failure to do so could be a sign that they're just after your deposit. Time to run!
Bottom line? It's important for a renter to check out the landlord. The tools aren't particularly good, but they can help you avoid some obvious problems. And, if you do find that your landlord is in foreclosure contact the bank and housing agencies to see what steps you need to take to protect yourself.
Keep on Stretching those Dollars!