From today's Stockton Record is a story becoming more familiar as speculators find that rents are not increasing as much as they hoped as carrying costs increase:
...(La Tishia) Morris went to the store across the street from the West Lane home she rented to buy a pack of cigarettes. When she came back, a notice to vacate was duct taped to her fence.
Her landlord had been default in payments, the house was in foreclosure, and Morris was told to leave.
Sheriff's deputies had been to the house three times since then. On that Thursday night, they told her she had 30 minutes to pack up and get out...
The mess reached the house on West Lane in the middle of November when the first letters arrived. They were addressed to the landlord, from whom Morris and her family had been renting the house for almost a year.
Morris said she tried to reach her landlord, couldn't, then set the letters aside. None of the mail was addressed to her, so she didn't open it.
A month later, a real estate agent came to the door and told her the house was in foreclosure, Morris said.
The agent told Morris she likely would have to move. But when Morris finally was able to contact her landlord, he told her he had caught up on his payments. He said she could stay, and she took his word for it.
Then on Jan. 3, she came home to a five-day eviction notice.
So what are the rights of renters when the banks foreclose on the owners? While there is some legislation that's passed the House (but not the Senate) that would enforce existing leases and allow month-to-month tenants 90 days to vacate, at the moment it mostly depends on state law and if the property falls under any rental control ordinances. From the Nolo Press website:
Tenants who refuse to leave face an eviction lawsuit, for which they usually have no legal defense. The impact of an eviction on a tenant's ability to find future housing can be devastating. No law prevents a future landlord from automatically rejecting tenants with evictions on their record, even when those tenants were the innocent victims of a foreclosing bank.
There are some notable exceptions, however, to this grim scenario. Tenants who participate in the federally financed Section 8 program will see their leases survive, as will tenants in New Jersey, New Hampshire, and the District of Columbia. In these states, new owners cannot evict lease-holding tenants unless the tenants have failed to pay the rent or violated any other important lease term or law. Tenants in other states who live in cities with rent control “just cause” eviction protection may also be protected.
And, while it doesn't necessarily make sense to risk vandalism to vacant properties, it's clear that lenders have no interest in becoming landlords, plus they think that properties without tenants sell faster. That's why some have come up with a "cash for keys" program, in which they offer money to borrowers -- and sometimes renters -- to vacate within a certain time period in order to save them the costs of eviction. Still, it's not a lot of money -- typically $500 to $2,000, although desperate lenders with many foreclosed properties on their books may offer more -- and it's often the responsibility of the tenant to track down the lender to negotiate an exit strategy. Speaking from experience, I've been on the landlord side of an eviction, and I would have tried just about anything (and did) to avoid the time, stress and costs of an eviction.
Once out of the rental, however, the tenants might also have legal resource if there was a lease:
After signing a lease, the landlord is legally bound to deliver the rental for the entire lease term. In legalese, this duty is known as the “covenant of quiet enjoyment.” A landlord who defaults on a mortgage, which sets in motion the loss of the lease, violates this covenant, and the tenant can sue for the damages it causes.
Small claims court is a perfect place to bring such a lawsuit. The tenant can sue for moving and apartment-searching costs, application fees, and the difference, if any, between the new rent for a comparable rental and the rent under the old lease. Though the former owner is probably not flush with money, these cases won’t demand very much, and the judgment and award will stay on the books for many years. A persistent tenant can probably collect what's owed eventually.
Since that's clearly not an optimal solution, perhaps some legislative reforms are in order, such as HR 3915, The Mortgage Reform and Anti-Predatory Lending Act of 2007, that's awaiting approval by the Senate.
If this issue is important to you, this might be a good time to call your Senator and voice your opinion.
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