Could new law protecting tenants from foreclosure be ‘abused’?

July 10th, 2009, 4:00 am · 10 Comments · posted by KELLI HART, THE ORANGE COUNTY REGISTER

A recently signed federal law is designed to protect tenants when their landlords default.

Before H.R. 1247 Protecting Tenants at Foreclosures Act of 2009 was passed by Congress, tenants nationwide were finding themselves in a bind when their landlord’s property went into foreclosure without any warning.

The new legislation states:

“…any immediate successor in interest to residential property in foreclosure assumes such interest subject to: (1) giving an existing tenant at least 90-day notice to vacate; and (2) specified rights of such tenant to occupy the premises until the end of the lease”

Local Realtors weigh in on how the law will benefit tenants in south coastal Orange County:

Hillary Caston, Laguna Beach Realtor:

“Many people today are renting homes that are going to into foreclosure. The tenant is unaware that they had been paying their rent in good faith and the foreclosure process was going on behind their backs. Next thing you know one day they get a knock on their front door to be out of the house in three days! The tenant is dumbfounded and bewildered. They have no place to live and the security deposit that was with the landlord is generally no longer available to return to the tenant.

We now have a new law. In a nutshell it is protecting the tenant with the following: the tenant is entitled to continue to lease the home until the end of his lease term AND have an additional 90 days thereafter. It is my understanding that a month to month tenant will also be given an additional 90 days after the end of that month to move out. Obviously in both scenarios, the tenant continues to pay rent to the bank who has taken the foreclosure.

This is a wonderful ruling to protect an unaware tenant and to give him or her time to make new living arrangements.”

Jeff Stearman, San Clemente Realtor:

“There are a lot of abuses, tenants are put in bad positions a lot of times because they rent in good faith and the landlord doesn’t tell them they’re not making the payments. So all of the sudden they find out last minute they have to move. This way it at least gives them some time.

In the long run it might make it better for the banks also, they made it easier for the cash for keys transaction and less evictions for the banks to deal with. Where it gets messy is at the end of the lease. What is a legitimate lease? Is it month to month? What happens if it’s the brother who is living in the house and the day before foreclosure happens they do a one year term with them? That part is not really clear.

Tenants should have some rights not to be thrown on the streets. There are a number of homes that have tenants in them that go into foreclosure. They got caught in the middle and it’s not their fault. A Realtor should check to see if a NOD (notice of default) has been issued, if it has, we tell people and it’s their decision. A Realtor should at least look into public records and do their due diligence to protect them.

Now they have time to find a place that they like and not have to take a place they don’t like.”

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Posted in: Dana Point • Foreclosures • Laguna Beach • Property • distressed properties • distress • Hillary Caston • Jeff Stearman • Protecting Tenants of Foreclosure Act of 2009 |

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10 Comments

KELLI HART, THE ORANGE COUNTY REGISTER says:

July 10, 2009 at 9:38 am

Have you or has anyone you know been stuck in a situation where they have been renting and find out they have to be out soon because their landlord defaulted?

Cherri says:

August 31, 2009 at 6:59 am

This is exactly what happen to my family and I twice in a roll. The first time, we had the move to immediately move out and find another place. Unfortunately the new place went into foreclosure too. We did not find out until after being in the house for a year. The landlord didn’t tell us. He was still faithfully accepting our rent. We didn’t find out until a Sherrif knocked at our door with a summons for court for the owner of the house. When I notified my landlord he said he didn’t know anything about it and he would call me back. I never heard from him again.

Now we are stuck in this situation again, but this time our financial ability is limited cause my husband got laid off his job and I just had a baby and am not working.

This is such a hardship on our entire family. We have 4 kids all 6 years old and under. This has been a very stressful situation and the banks and their attornie are bluntly uncompassionate and do not even mention your options unless you bring it up and get your own lawyer involved….They will just put you out.

I am very greatly for this new legislation. We needed that so badly and even more cause every situation is diffent. I wish their was an agency in every state to help people in this situation cause there are still a lot of people who don’t know about it or understand it or even know how to enforce it so they can benefit from it.

The big Orange ball is Dropping says:

July 10, 2009 at 11:57 am

In the great debacle that is real estate these days. The question isn’t can the system be abused. It’s more can you find a single person who isn’t abusing the system.
Now THAT would be a story.

Reality says:

July 10, 2009 at 2:12 pm

Off Topic:
I’m not into Real-Estate so I have no idea what this means but I bet some of you do. Why are apartment rentals at historic lows? If people are not buying houses & not renting apartments where are the living?

http://news.yahoo.com/s/nm/20090708/ts_nm/us_realestate_usapartments

sangell3 says:

July 10, 2009 at 2:41 pm

Mr. Stearman makes a good point about a bogus lease made in contemplation of foreclosure. Say signing a 12 month lease at half of market value to an adult child and then staying on as ‘the roomate’.

That said, I saw a guy moving his 90 year old mother out of a condo because the jerk of a landlord had hid the foreclosure from the tenant. so , obviously tenant protection is beyond necessary.

Perhaps, as part of the foreclosure process, a sheriff should be required to physically deliver to the residents of a property a notice of default. that would also require the tenant to pay rent to the lien holder instead of the defaulted landlord.

JT says:

July 10, 2009 at 4:15 pm

This law seems to miss the point, though, when it comes to the eventual new owner of the foreclosed property. Sure, the bank has to give them 90 days to move out, but what if in the 45th day the bank finds a ready-willing-able buyer who upon learning that they will be forced to allow someone else to live in thier home for another 45 days decides to walk. Sounds to me like law which will cause a lot of otherwise good real estate deals to fall through, and cause banks and future homeowners a lot of heartache. As a first time homebuyer, I’d never go for a home with a mandatory tenant.

systemsixlv says:

July 10, 2009 at 9:13 pm

Got caught up in this just recently. Signed the lease in April, moved in May 1st, NOD filed May 15th. Very stressful especially when moving from out of state. Owner hadn’t made a payment since January. They did finally settle it with the bank a few weeks ago.

My advice to anyone that is looking to rent a house or condo. Just searching public records isn’t good enough. Get a current statement on the loan before you sign that contract. Then if they decide to quit paying you have about 10 months or so. If they can’t or won’t provide that, something is up. I still have a house out of state as a rental and could print that off in 5 mins. Next, stick with the big names - Century21, Remax, etc. to help you find a nice rental.

I’d also ask for a termination of contract section if a NOD is filed. Better protect yourself there are a lot of scumbags out there.

OC4truth says:

July 11, 2009 at 11:20 pm

One thing that I don’t understand is, if the comments are correct that a mo to mo tenant would get an additional 90 days, is why?

The other thing that isn’t spelled out is the question of whether the tenant has to be in good standing with rent current? If not, there is a definite way it can be abused. What if the tenant hadn’t paid their rent and that contributed to the default on the mortgage? Although usually a tenant would have less time before an eviction happens, it could still be several months until the tenant is evicted for non payment of rent, especially if the landlord was an individual landlord who gave a bit of grace to the tenant.

We’ve just had some real bad experiences with trying to evict a couple of tenants who damaged our property and did not pay the rent and it taking awhile to get them out. Current laws seem overly protective of tenants in general to the detriment of landlords. And it seems that some tenants know how to milk the system to string things out. And then once they are evicted, depending on how the unlawful detainer was filed, there may or may not even be a judgment for rent. But to pay for damages, that requires an additional process.

But in the case of foreclosures, assuming the tenant had rented in good faith and was current on their rent they should be allowed to stay. This could also be more beneficial to the bank or other owner in that they would continue to have an occupied and presumably cared for property and would continue to receive income from the property. And this would be especially true I would think in the case of areas with lots of foreclosures where a quick sale would be difficult.

A vacant property does not bring in income and can be vandalized and require maintenance expense as well as loss of value from damage to the premises. It just seems that in many cases, having a tenant in good standing who is keeping the place up, continue to occupy a foreclosed property and pay rent is a win-win situation.

OC4truth says:

July 11, 2009 at 11:28 pm

I should also point out, that even if there is a judgment for unpaid rent, that is not the same as payment for unpaid rent.

So bottom line, can it be abused? Of course as current laws that are apparently designed to protect tenants from abusive landlords are being abused to the detriment of conscientious landlords with deadbeat tenants who damage property.

But it also just seems good sense for banks to work with tenants rather than their apparent usual automatic eviction of tenants. In a down market with sluggish sales, keeping a tenant seems like an asset. A vacant property, especially in an area of other vacant properties is a liability.

Banks should be flexible under current conditions and realize that a paying tenent, at least for awhile is a good thing. And they should develop systems to handle managing foreclosed properties as income properties at least for an interim.

Giang Hoang says:

July 16, 2009 at 2:54 pm

I don’t believe this bill has been passed by Congress. HR 1247 is currently in Committee in the House of Representatives.