Foreclosures Kick Out Renters Too

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

A guest post from Frank Shump. Frank is a veteran from the financial services industry, and currently authors a blog called Thefinancecastle.com, which documents his thoughts on money matters and his adventures in self employment.

The fallout from the collapse of subprime mortgage securities and other bundled up, complex derivatives has claimed a pretty wide ranging number of victims along the way. The biggest and most prominent included Bear Stearns and Lehman Brothers, not to mention a slew of other banks and financial institutions, but the subsequent seizing of the credit markets has taken out some other firms and demographics that we’ve had a tough time anticipating. Certainly homeowners are reeling, as tight credit is squeezing out potential buyers (and first time buyers as well) from getting into a real estate market that seems teeming with opportunities to get in at the ground floor. Home prices have followed suit, dropping my huge margins in a number of areas across the country. With all of this housing hullaballoo, you’d think that renters would be fairly insulated from this market pandemonium…but you’d be wrong.

Tenants, paying their rent each month faithfully despite rising unemployment and a steep economic downturn, may actually find themselves evicted without warning as their landlord defaults on a mortgage they can no longer afford..and the instances of this event continue to grow. Banks are repossessing an increasing number of multi-unit homes, with the number jumping 150 percent through the end of October. That doesn’t cover single-family homes that are rented out heading into foreclosure, either.

Some landlords are overwhelmed, and often purposely pocket the money that tenants give them without letting them know that hey..this house isn’t going to be mine anymore soon. As a result, renters can find themselves going from a comfortable lease to the street in relatively short order. The question that remains then, is what can and should be done to prevent this from happening in the future?

Some in Congress believe that the best way to go about finding a solution is to speed up reforms on tenant rights. Hopefully after said reforms are put in place, renters could be allowed to stay in their homes even after it goes into foreclosure. That could be a sticky situation, but Freddie and Fannie both say they’re working through ways to make this happen. Fannie Mae could offer financial assistance to help tenants relocate (you know with all the money they’re earning…) or work our a lease agreement if the situation warrants it. Fannie is beginning pilot programs that hire out management companies to keep the bank-owned buildings up to snuff (and possibly with tenants) until they find a potential buyer for the property. That could take a good amount of time to implement, however, so it’s reasonable to expect that many more tenants will be left out in the cold before help arrives.