As Owners Feel Mortgage Pain, So Do Renters

As this New York Times article (http://www.nytimes.com/2007/11/18/us/18renters.html?_r=1&hp&oref=slogin) spotlights, it is not just homeowners who are losing their stable homes due to the surging number of foreclosures. As real estate investors begin to go under - whether due to having other rental properties vacant or acquisition/rehab/resale deals crash and burn due to the lack of sales in the housing market - many tenants are finding themselves sucked into the foreclosure maelstrom. I have had investor clients lose properties and the tenants are caught in the cross fire even though they have made every rent payment on time. I continue to believe things are going to get much messier. Here are some story highlights:

LAS VEGAS — In the foreclosure crisis of 2007, thousands of American families are losing their homes without ever missing a payment. They are renters in houses whose owners default on their mortgages — a large but little noticed class of casualties. Some live in big apartments, others in houses owned by small investors who got in over their heads.

There are no exact figures for how many renters have been evicted because of foreclosures, but a survey taken this year by the Mortgage Bankers Association found that one in eight foreclosures was non-owner-occupied. This figure probably underestimates the problem, according to the association, because buildings receive tax benefits if they are registered as owner-occupied. More than one million properties are expected to enter foreclosure this year.

“This is an explosion,” said Judith Liben, a lawyer at the Massachusetts Law Reform Institute. “This isn’t business as usual. These are investors that overleveraged themselves, and the renters are collateral damage in the mortgage crisis.” Foreclosing lenders typically evict tenants in order to sell the property, said Vicki Vidal, senior director of loan administration and government affairs at the Mortgage Bankers Association. “Banks don’t want to be landlords,” Ms. Vidal said. “They’re in the business of making mortgages. You need to recoup the money to keep the process moving.”

The House [of Representative] on Thursday passed a broad mortgage act that includes protections for renters. The House act, which the lending industry has opposed, would require new owners to continue the leases of tenants for up to six months after foreclosure. In a statement, the White House said it opposed a number of provisions in the House mortgage bill, but did not single out protection to renters.

“A lot of the investors were subprime, but the market was so great they could keep refinancing and make the mortgage payments with no problem,” said Anna Marie Johnson, the director of Nevada Legal Services, whose clients increasingly include displaced tenants.