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Monday, May 19, 2008

Foreclosures hurt renters, too...

From a recent article by Kelly Evans in the Wall Street Journal real estate Web site comes this “news.” Across the country, a rising number of landlords are falling behind on mortgage payments, sending their properties into foreclosure, according to legal-services attorneys, local officials and financial experts -- and in many cases, their tenants are being forced out of their homes. Often, the tenants' first inkling of trouble occurs when they get a letter from the bank directing them to leave the premises. Statistics show that just over 20% of all foreclosures are rental properties.

In many cases, the homes and apartments entering foreclosure are owned by investors who got low-rate teaser mortgages and intended to hold the buildings for a few years and then sell them at a profit -- before their mortgage rates rose. Now, with the housing market badly depressed in many areas, the owners can't sell the homes or afford the higher mortgage payments. Many are defaulting. I suspect that we have that problem all over the Detroit area. I certainly know of some local real estate investors who thought that they could take advantage of the down market to build up a portfolio of rental properties but who now find themselves in default on one or more of the properties.

In most states, foreclosure voids leases, and banks move quickly to get tenants out. Depending upon the state, tenants get between three and 30 days notice.. A few states (not Michigan) have laws protecting tenants from eviction in the event of foreclosure, and others are moving to give renters more notice. It is clear that, nationwide, tenants who did nothing wrong except to rent from a defaulting owner are suffering harsh collateral damage from the mortgage fallout. Foreclosing banks often refuse to pay the utility bills or make repairs on the properties, so some tenants find themselves without power or with dangerous repair situations while they are fighting eviction.

So what can renter do to protect themselves? Chip Cummings, a 25-yr. mortgage industry veteran and best-selling author of the book “Mortgage Myths - 77 Insider Secrets to Saving Thousands on Home Financing” offers these tips to renters who think their apartments/homes may be involved in a foreclosure proceeding:

* In all cases, notice of the foreclosure must be served on the property. Look for notices posted on doors, and if suspicious, check with your county for a filing notice of the foreclosure action.

* Ask for a credit report on your landlord, or at least three credit references to be satisfied that they are making their payments. Check for overdue utility bills or notices. Look for deferred maintenance on the property. Even small items that have been ignored could raise a red flag for a foreclosure action.

* Is the property all of the sudden for sale? Check with the real estate agent to find out why they are selling and how motivated they are. Be wary of deep-discounted listing prices and incentives. Check your rent checks to see if they have been assigned to a third-party agent in recent months.

* If you are aware of a foreclosure action on the property, don’t pay the landlord - pay your rent into an escrow account and contact an attorney who specializes in foreclosure property issues.

* File a legal action against the landlord for “non-performance” on the lease, and try to recover expenses, damages and the costs of relocating you incur as a result of the foreclosure.

* Call the new owner (the foreclosure lender) directly, and try to negotiate a short-term lease and offer to protect the property for them while you search for new housing.

The sad truth is that renters are just part of the “collateral damage” of the current mortgage meltdown that I have reported on before in this blog. I suppose it would be the height of bitter irony if a person whose home was foreclosed moved into a rental house that was then foreclosed. It could happen.

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