With foreclosures at record highs, a growing number of tenants are finding themselves out on the street — even though they've paid the rent long after the landlord defaulted on the mortgage. Now, efforts are under way to protect tenants, whose first inkling of a problem may come when they get an eviction notice.
Deborah Stokes moved from Chicago to Rockville, Md., last fall to take a job with the Smithsonian, but five months after she signed a lease on a condo, the landlord told Stokes the property was headed for foreclosure.
Now, Stokes has an advertisement in the housing wanted section of Craigslist — and it is she who is looking to check out prospective landlords.
"I'm a good renter, and I want to look for a good landlord," Stokes said. "I've rented many apartments all over the world. I've rented in Chicago, Los Angeles, New York, Australia, Amsterdam, Africa. I've never been in this situation — never."
Tenants Get More Protection
John Nethercut, executive director of the Baltimore-based legal advocacy group Public Justice Center, said until recently most states had no formal way to notify tenants about a pending foreclosure — and no legal requirement to do so.
"As a result, a lot of tenants were surprised," he said. "They've been paying their rent. They didn't even know there was a problem, and then they get an eviction notice from the sheriff."
Nethercut said the National Low Income Housing Coalition reports that about 40 percent of families facing eviction due to foreclosures are renters — a staggering figure that is spurring change.
More than a dozen states now require that tenants get a notice when they face eviction due to foreclosure, and Congress is considering a plan to make a 90-day notice mandatory all over the country, according to the coalition.
Mortgage giants Fannie Mae and Freddie Mac have stopped evicting tenants from homes they repossess; instead, tenants can rent month-to-month until the homes are sold, the lenders said.
New Jersey, Massachusetts and Washington, D.C., require buyers of foreclosed properties to honor existing rental contracts, but banking industry representatives said that goes too far.
Kathleen Murphy, who heads the Maryland Bankers Association, said extending leases beyond a foreclosure sale would kill most deals because it would force banks to become landlords — something they don't want to do.
Banks Resist Some Measures
"I would say that it creates a disincentive for individuals to purchase foreclosed properties," Murphy said.
Most renters know that their situation could change anytime — foreclosure or not. Murphy said her own mother had to move four times in three years because the landlords' circumstances changed. They no longer wanted to rent, or they were putting the place up for sale. "I think it's just one of those risks you take, as a tenant," she said.
Meanwhile, Stokes is dreading her coming move. She has a lot of antique furniture that must be handled carefully and hundreds of art books — and the eviction happened so fast, she had no time to save money for the move.
Now, when a prospective landlord asks her for $35 to run a credit check, Stokes said she plans to ask to run a credit check on them, too.
"The next rent that I pay, I'll know who I'm renting from, what their resources are, what's behind that property," Stokes said.
There is a company that offers a similar service. Foreclosure tracking company RealtyTrac sells what it calls "Renter Alerts." For $25 a year, the company will notify tenants, or potential tenants, of any foreclosure activity on a place they are renting or want to rent. The service is limited to the 1.8 million properties RealtyTrac monitors in mostly urban parts of the country.