Renters losing their homes without missing a payment
While the housing foreclosure crisis of 2007 negatively impacted many homeowners with shaky financial histories, thousands of families are losing their homes without ever missing a payment. These residents are renters who had the unfortunate luck of living in houses whose landlords defaulted on their mortgages — a large but little noticed externality of the subprime fallout.
While it remains unclear many renters have been evicted because of foreclosures, the Mortgage Bankers Association took a survey earlier this year and found that one in eight foreclosures was non-owner-occupied. But the association acknowledges that this figure likely “underestimates the problem” because building managers have an incentive to register as owner-occupied for tax reasons, even if the units are rented.
According to the New York Times, “in Nevada, which has one of the highest foreclosure rates in the country, 28 percent of mortgages that were in default earlier this year were for homes not owner-occupied, more than twice the national average.” Arizona, Florida, and California, all states hit hard by foreclosures, are well above the national average as well.
“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.”
Although the stakes are lower for renters than homeowners, mostly because renters do not stand to lose years of equity, many renters “feel blindsided by the news that they could be evicted, especially if they have been diligent in their rent payments.” Cash for moving expenses and deposits on new rental properties can also be a financial drain, especially for tenants who had no idea their buildings were in danger of foreclosure.
On Thursday, the House passed a comprehensive mortgage act that includes protections for renters. “The House act,” reports the Times, “which the lending industry has opposed, would require new owners to continue the leases of tenants for up to six months after foreclosure.”
Senator Christopher J. Dodd, Democrat of Connecticut, who introduced similar legislation in the Senate, said in a statement, “A foreclosure doesn’t differentiate between a homeowner and a renter residing in a defaulting property.” Currently, most state or local laws do not provide this protection.
Read the whole story HERE.