Saturday, February 09, 2008

Mortgage Crisis Collateral Damage: Renters Beware

The Chronicle had a horrifying story the other day, about renters getting screwed by the mortgage crisis:

As the mortgage crisis claims more homes - more than 11,000 Bay Area residences were repossessed by lenders last year - an increasing number of tenants are facing rapid evictions by banks eager to partially recoup their losses by selling the properties. In November, a Chronicle analysis of Bay Area foreclosures showed that about one-fifth had nonresident owners. Presumably many of those investor-owners rented out their properties to produce income.

Foreclosure-related evictions of renters show how fallout from the mortgage meltdown can spread even to people who don't own houses.

"We pay our rent on time every month; we figured everything would be all right," said Jesse Vasquez, Diharce's husband.

Tenants' rights in such situations are minimal. If they live in a city with rent control, they are covered by its eviction regulations. Hayward, where Diharce and Vasquez live, does not have rent control for single-family residences.

Otherwise, renters are subject to state law, which generally requires 30 days notice. A foreclosure usually invalidates an existing lease, legal experts said.
State law requires 30 days, but (some? all?) lenders either don't know that, or count on the tenants not knowing that (probably some combination of the two). So in this case, the tenants found out about the foreclosure from an auction notice on the front door, and when they called the lender they were told they had to be out in a couple of weeks. Fortunately, the family in the article knew better; unfortunately, a lot of renters don't, and the lenders take every advantage they can.

This is seriously sleazy at avery level except the tenant's. The lenders sucker people into loans they can't afford, or else greedy real estate mogul wannabes bite off more than they can chew--take your pick. When it all goes bad, the tenants get no notice. Some owners wind up cashing rent checks long after they no longer own the place. Lenders use deceptive tactics to get rid of the tenants (for example, telling tenants in one property that they didn't have to pay rent as long as it was in foreclosure--then serving an eviction notice for non-payment). The only people who are innocent here are the ones who are, as usual in a position to be screwed by everybody: the renters.

This problem is not entirely unknown. State legislators actually tried to deal with it. State Senator Don Perata submitted a bill
that would have required banks to give 60 days notice to tenants in foreclosed properties. It also would have required lenders to provide homeowners with four months notice before mortgage payments increase by 10 percent or more.
Perata's bill lost by one vote, dying on the last day it could legally be passed on a procedural motion that required a 2/3 majority. There were 26 votes in favor and 14 votes against; the nay votes were from 14 of the 15 Republicans in the state Senate.

Update: In comments, Aimai points me to a horrifying article in the Boston Globe, about the practice of routinely evicting everyone from multi-tenant buildings in foreclosure--and refusing to sell to potential buyers who want to keep the tenants in place. The owner of the building in this story is Deutsche Bank, one of the big losers in the mortgage crisis. Their response to the story:
A spokesman for Deutsche told the Globe, "We're going to decline to comment for the piece. We just don't see an upside in explaining this stuff."