SEATTLE (Reuters) - As the U.S. mortgage crisis forces more properties into foreclosure, even renters are feeling the pain.
By Cynthia Osterman
SEATTLE (Reuters) - As the U.S. mortgage crisis forces more properties into foreclosure, even renters are feeling the pain.
When a landlord cannot pay the mortgage, tenants can face eviction, financial loss and pressure tactics from new owners who want them to move out. And some are ending up homeless.
Teacher Stuart Briggs was plunged into a nightmare when lenders foreclosed on his landlord last year: Utilities were cut off and he endured months with no lights or working toilets.
!ADVERTISEMENT!Vagrants took over an empty unit, and the building, in Oakland, California, fell into disrepair. Next the bank demanded that he and the other tenants pay five months rent at once or face eviction in three days.
"We had no idea this was coming. We were stranded," he said.
Realtytrac, a firm that monitors foreclosures, estimates that 20 percent of foreclosures nationwide involve rental property and that number rises to around 45 percent in some places like Las Vegas and San Diego.
In Minnesota, tenant hotline HOMEline found the number of calls it got from renters facing eviction due to foreclosure rose to 427 last year from 47 just two years earlier.
For renters, the crisis often begins unexpectedly as owners are rarely required to tell tenants they are in arrears.
Darrell Smith and his wife, who rented a house in Phoenix for $1,245 a month in mid-December, can attest to that.
Little did they know that, when they signed the lease, the house had been in foreclosure since November. Just one day after they moved in, notice was posted on the door that the house would be auctioned off to pay the debt.
They had paid the landlord $5,500 in move-in costs including $2,200 for an option to buy the house in a year. They also spent $11,000 in moving expenses, Smith said.
They are trying to fight in court but so far have only gotten an $1,800 judgment against them for not paying their next month's rent. "Me and my wife don't know what to do," Smith said. "We've had one nightmare after another with this house."
FROM APARTMENT TO HOMELESS SHELTER
More often, tenants don't fight when lenders or landlords tell them to move out, and they almost always lose their security deposits and any advance rent payments, according to housing advocates.
Rosemary Spencer and her two children are being forced out of the house that she has rented on Chicago's South Side for two years because of foreclosure.
She had no inkling of a problem. "Then the sheriffs came one day with a notice," Spencer said. She has no other place to go, she said.
Gabriel Zucker of the Illinois Tenants Union, which helps renters in Spencer's position, said she has few options because foreclosure nullifies a lease in the state. "There's no way to fight it. We are just doing all we can to keep the tenant there as long as possible until they have the wherewithal to find an alternative place," he said.
Some renters do not land on their feet. Chris Anderson, who heads homeless services for the Saint Vincent de Paul, a Catholic charity in Phoenix, a foreclosure hotspot, said numbers are growing.
"We see a lot more (evicted renters) these days. They are going to shelters or weekly motels or doubling and tripling up in family members' homes," she said.
Laws vary widely around the country, and a housing bill before Congress would give renters at least 90 days notice before eviction for foreclosure and other rights if passed.
Some places offer more protection. New Jersey and the District of Columbia dictate that leases survive foreclosure. In Minnesota, renters are allowed to stay six months in their homes after a foreclosure sale, and there is movement in other states such as Nevada and Arizona to consider new rules.
But Las Vegas resident Patricia Shorter is so desperate she would actually welcome an eviction notice. She was recently laid off from her job, and she and her husband, who is unemployed and disabled, unwittingly rented a house in November that went into foreclosure two days after they moved in.
After a few weeks, legal notices began arriving for the owner, people showed up to photograph the house and the landlord stopped taking her phone calls. Then two days before Christmas, they told the family they had to be out within days. A crew came with a truck to take away the appliances.
While the family has held on to the house so far, they are out of funds and believe that with an eviction notice they might be able to get assistance to move.
"We spent all our money to move in here. We've got nowhere to go. The only thing that is getting us through is our strong belief in God," Shorter said.
SHRINKING RENTAL STOCK
While the weak real estate market has brought down rents in some places, giving renters a leg up, in many cities it offers no help to displaced tenants. Lenders are keeping foreclosed properties empty in hopes they will sell faster, and some renters struggle to find new homes.
"We're actually seeing a shrinkage in housing stock, less rental housing, because of all the foreclosures. The banks are holding on to a significant stock of empty housing," said Jim Vilt, directing attorney for Nevada Legal Services, which sees about 20 renters a week facing foreclosure.
In Seattle, which has a low rental vacancy rate, Jonathan Grant, a housing counselor at nonprofit group Solid Ground, said the tight market gives evicted tenants few alternatives, especially the poor and the disabled who get housing subsidies. Higher-income renters are also competing for rentals with former homeowners who have lost houses due to mortgage woes.
"The housing market is extremely tight and rents are extremely high. People need a lot more time to move" than the 20 days provided under Washington law, Grant said.
As rolling foreclosures leave swathes of vacant homes in some cities, vandalism and crime are growing. This has led activists to suggest that banks should keep tenants in place as a way of preserving neighborhoods and property values.
John Mechem of the Mortgage Bankers Association said there sometimes may be merit to that argument, but lenders are not equipped to be landlords and do not want the job.
Lenders almost universally want the properties vacant and sometimes employ brokers and agents who get bonuses for getting tenants out more quickly. This is giving rise to shady practices, said Judith Liben of the Massachusetts Law Reform Institute, who has studied the problem.
"There are terrible tactics all over. People are scared and intimidated (into moving) even in places where there are laws to protect them," she said.
For example, in Oakland, California, where a tenant cannot be evicted for foreclosure, renters in one building got notices that their monthly payment was being raised from $800 to $10,000, said Alex Katz, a spokesman for City Attorney John Russo. Others have gotten notices that locks would be changed and possessions discarded.
"It's a creative way to do an eviction," said Katz. The city has been successful in blocking many such moves but believes there are many more it doesn't know about.
(Reporting by Cynthia Osterman; Editing by Eddie Evans)
