As Foreclosures Keep Coming, Renters Are Threatened Once Again

foreclosure locksIt's one of those stories that sounds appalling, that you might hope the media is playing up just for its shock value: responsible and conscientious tenants who suddenly find themselves evicted and out of a home -- because the property they are renting is under foreclosure.

At the start of the recession, reports of renters being blindsided by foreclosure notices were not unusual. The problem prompted President Obama to sign the federal Protecting Tenants at Foreclosure Act in 2009. It requires tenants receive a 90-day notice if they are being evicted due to foreclosure -- and that most existing leases for renters be honored up to the end of their term.

Foreclosures Rising

Some long-time observers of the housing market believe the federal law and an improving economy have reduced the number of tenants caught up in foreclosure. "There's more bark than bite right now in what we're seeing, with . . . tenants getting stuck," says Scott Lukes, president of Denver-based Echo Summit Property Management. "However, property management is a hugely fragmented industry, with a lot of smaller players. Individual landlords, people who own one, two, three properties [or] real estate investors that are trying to squeeze blood out of the turnip -- those are the areas where there's a lot more risks for renters."

Lukes says the problem does exist, "especially when you couple foreclosure with Chapter 7 full-on bankruptcy [protection]. It gives a property owner a pretty substantial get-out-of-jail-free card, that really does impact other people's lives." But he's reassured by what he's seen from bankruptcy judges and attorneys who have been forcing defaulting home owners and investors to be more accountable with their tenants. "The real estate investor that has two dozen properties that they're having a hard time with, and they just want to get out of Dodge and become a school teacher? That ain't happening," he says. "You are responsible for all this stuff and we're not going to let you out like this. So I think this has been a real problem but the system is really, really getting smart about it."

But smartness does not, for the moment, signal an end to the crisis. RealtyTrac released its U.S. Foreclosure Market Report earlier this month. It reported an increase of nearly 4% in foreclosure filings -- "default notices, scheduled auctions and bank repossessions" -- for the third quarter of this year.

"Lenders foreclosed on a record number of properties in September and in the third quarter, taking a bite out of the backlog of distressed properties where the foreclosure process was delayed by foreclosure prevention efforts over the past 20 months," said RealtyTrac CEO James J. Saccacio in a press release. "We expect to see a dip in those bank repossessions -- and possibly earlier stages of the foreclosure process -- in the fourth quarter as several major lenders have halted foreclosure sales in some states while they review irregularities in foreclosure-processing documentation that has been called into question in recent weeks."

Renters Pulled Back In

At the start of the recession, Dr. Ron Throupe, assistant professor at the University of Denver's Daniels College of Business Burns School of Real Estate and Construction Management, saw the reports of renters caught up in foreclosure nightmares. And now, he says, he has friends who are in the very same fix. One of them called Throupe last week, saying his family "got what I call a 'tack-and-send'; they tack the notice to the door. It was for his landlord, who was late on his mortgage. This guy's living there, he has aspirations to purchase the place, his lease ends in February -- he's like, 'Ron, what can I do?'"

Dr. Throupe thinks this might be phase two of the mortgage mess, as home-owners who survived the first tsunami of the post-housing bubble struggle to hold on to their properties. "Two years ago I saw quite a bit of it," he says, "and now I'm seeing it again. I suspect [some] people are trying to rent the place for a while; maybe that worked, the lease got them half-way home on their debt, [but] now it's coming home to roost and they're still not making their debt."

And the renters, meanwhile, are unwilling players in the so-called "shadow market." Those are houses "that would be on the market if [their owners] felt they could sell them," says Dr. Throupe. "A lot of those are renting; [their owners] trying to buy time to get to a better market condition."

The shadow market also leaves some renters wondering if they'll ever get back their security deposits, advanced rent payments and other out-of-pocket expenses. That concern, plus the uncertainty of whether to pay the property owner or the bank, has prompted some tenants to simply withhold payments altogether.

"I've heard that to some extent and I can't blame them," say Throupe. "Technically, who owns the rent? There's still a contract in place, but it's like that movie, Catch Me If You Can."

But Lukes notes that, legally, the renter is obligated to pay their landlord, " even through this whole, awful awful process. "We get that question a lot," he says.

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MY LORD

The banks would probably like to keep the renters there even while it is in foreclosure, but I am sure there are laws against them doing so. The owner is pocketing the money but not paying the bank. The banks are not the bad guys in this situation.

October 29 2010 at 7:23 PM Report abuse +1 rate up rate down Reply
rpmaniac

The day the Democrats took control was not January 22nd 2009 it was actually January 3rd 2007. That’s the day the Democrats took over the House of Representatives and the Senate, the start of the 110th Congress. The Democratic Party controlled a majority in both chambers for the first time since the end of the 103rd Congress in 1995. For those who are listening to the liberals propagating the fallacy that everything is "Bush's Fault", think about this: January 3rd, 2007 was the day the Democrats took over the Senate and the Congress: At the time: The DOW Jones closed at 12,621.77 The GDP growth for the previous quarter was 3.5% The Unemployment rate was 4.6% George Bush's and the Republican Congress’ Economic policies SET A RECORD of 52 STRAIGHT MONTHS of JOB CREATION! Remember the day... January 3rd, 2007 was the day that Barney Frank took over the House Financial Services Committee and Chris Dodd took over the Senate Banking Committee. The economic meltdown that happened 15 months later was in what part of the economy? BANKING AND FINANCIAL SERVICES!!! THANK YOU DEMOCRATS for taking us from 13,000 DOW, 3.5 GDP growth and 4.6% Unemployment... to this CRISIS by (among MANY other things) dumping 5-6 TRILLION Dollars of toxic loans on the economy from YOUR Fannie Mae and Freddie Mac FIASCOS! (BTW: Bush asked Congress 17 TIMES to stop Fannie & Freddie starting in 2001 because it was financially risky for the US economy). And who took the THIRD highest pay-off from Fannie Mae AND Freddie Mac after Barney Frank and Chris Dodd???? OBAMA And who fought against reform of Fannie and Freddie??? OBAMA and the Democratic Congress So when someone tries to blame Bush... REMEMBER JANUARY 3rd, 2007.... THE DAY THE DEMOCRATS TOOK OVER!" Bush may have been in the car but the Democrats were in charge of the gas pedal and steering wheel and they were driving when the economy went into the ditch.

October 29 2010 at 11:42 AM Report abuse +1 rate up rate down Reply
wurkinman1

This president Obama is the snowball effect..Thank you for all you have done for this country....and you just wont stop !!!!!

October 29 2010 at 8:07 AM Report abuse +1 rate up rate down Reply
Wayne

WHERE IN THE WORLD WERE THE BANK EXAMINERS, INTERNAL AUDITORS, CPA'S DURING ALL THIS MESS?

October 29 2010 at 5:14 AM Report abuse rate up rate down Reply
galaxy4262a

the american people needs to start taking most of their money out of banks and if they charge for cheking take it all out i bank with wachovia and got rid of bank of america and i only keep a few dollars in their just to make then pay for keeping books and payper work , lol its time to make the banks pay not the people we the people of america bailed thease banks out and now all they want is to take our homes to sale them later on for big profit and they care less about me and you . i say we all fight back

October 28 2010 at 10:06 PM Report abuse +4 rate up rate down Reply
STANNYBOY

EVERY TIME I READ A FORECLOSURE STORY , I GET UPSET.HOMEOWNERS PLEASE BE AWARE THERE ARE REAL THEIVES OUT THERE WHO ARE OUT TO STEAL YOUR HOME ON THE PROMISE OF A LOAN . THEY USE THE BANKS , TITLE COMPANIES , LAWYERS AND ,APPRAISRES TO PLOT THEIR CRAFT . IT IS A BIG BUSINESS AND THEY ALL KNOW . I KNOW , I LOST MY HOME IN A RESCUE FORECLOSURE SCAM , THE STATE LET THESE SCAMMERS OPERATE KNOWING THEY WERE NOT PROPERLY REGISTERED TO OPERATE . WHEN I FOUND OUT , THATS WHEN THE GOVERNMENT BUREAUCRATS BEGAN TO PASS IT OFF TO OTHER AGENCIES . I HOPE THE FBI GETS THEM ALL . THESE SCAMMERS GET THE LOAN AND SUCK ALL THE EQUITY FROM YOUR HOME ,LET IT GO INTO FORECLOSURE OR SELL IT AND YOU DO NOT GET THE MONEY YOU AGREED TO. DO NOT INVEST IN A FORECLOSED PROPERTY NOW . YOU WILL NEVER KNOW WHO MAY STILL OWN IT , DO NOT TRUST THE BANK . THE SCAMMER WHO GOT ME HAD HIS MONEY THERE . THEY NEVER QUESTIONED THE COMPANY AFTER NUMEROUS LAWSUITS. CHECK AS BEST AS YOU CAN TO FIND ALL RE BROKERS , MORTGAGE ,TITLE ,AND FLIPPERS OF THAT PROPERTY , YOU MAY JUST FIND THAT THE ONE WHO CAUSED THAT FORECLOSURE HAD AN INVESTOR ON THE SIDE (STRAW BUYER) OR A COMPANY THEY SET UP THROUGH SOMEONE THEY KNEW . WHEN THEY ARE CAUGHT , THE FAMOUS SAYING IS "BANKRUPT. DO NOT BELEIVE IT , YOUR MONEY IS IN ANOTHERS NAME OR A BANK OFFSHORE. HOPE THE PRESIDENT LIVES UP TO HIS PROMISE TO LET THE OFFICIALS IN CHARGE TO INVESTIGATE WHERE THEY HID THEIR MONEY SEIZE IT , AND RETURN THESE HOMES TO THE RIGHTFUL OWNERS WHO WERE SCAMMED . WE WERE THE ONES WHO LIVED THE AMERICAN DREAM. INCIDENTALLY, I OWNED MY HOME FREE AND CLEAR , IT WAS PAID FOR .I ONLY WANTED TO BORROW MONEY!!!

October 28 2010 at 9:53 PM Report abuse +2 rate up rate down Reply
jaguignon

JoJo do you know how to use a 'spell check'? It's plain to see you love Obama and voted for him because he is black and not for any other reason. We have given that man all the leaway any sane American would give someone that is as politically dangerous. Someone that goes and bows before arab kings and apologizes for our country and it's peoples? How dare him!

October 28 2010 at 7:48 PM Report abuse +3 rate up rate down Reply
jaguignon

Kat- Do you really think that Obama knows what the hell he is doing? With all the running around, partying and all?. The man NEVER gives you the citizen a complete and sincere answer to any question other than "Will it cost us more?" Then he is quick to blame Bush. Sorry Lady, Bush is long gone and this is his baby. You don't borrow 3 trillion to pay back 1.3 trillion. At least not with the math I was raised with! He is also an incredible liar to boot.

October 28 2010 at 7:14 PM Report abuse rate up rate down Reply
mckendraka

Radicals are mad...true blooded democrats know what is going on they will vote republican...look at what this ex kkk members are doing to Meeks in Florida, they are going for the white blond changing parties Christ...I guess they dont learn...I wonder why they wont wake up, after Juan Williams and Meek

October 28 2010 at 7:10 PM Report abuse -1 rate up rate down Reply
mckendraka

Lol, lol, Censorship is erasing anything against this administration....What happens are they afraid?

October 28 2010 at 7:04 PM Report abuse +2 rate up rate down Reply