When developing a comprehensive foreclosure prevention policy, communities may wish to consider the ultimate impact on families if a foreclosure is inevitable. What options exist to help both renters and owners find and afford a place to live if their home is lost due to foreclosure?
| Click on the options below to learn what communities can do to help renter and owner families regain stability after a foreclosure: |
Gates of Ballston, Arlington VA -- photo courtesy of AHC Inc.
| Protect tenants living in foreclosed properties
When a rental property is foreclosed upon tenants' options for retaining or restoring stable housing vary substantially depending on the community.
Facilitate rental options for former homeowners
Local and state governments can develop policies to focus on meeting the needs of families who are trying to recover from foreclosure.
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Protect Tenants Living in Foreclosed PropertiesForeclosure prevention efforts tend to focus on homeowners, yet many of the properties facing foreclosure -- including single-family homes and multifamily buildings -- are occupied by renters, leaving these families at risk of eviction -- regardless of whether or not they paid their rent on a timely and regular basis. A 2008 study of rental housing in the U.S. by the Harvard University Joint Center for Housing Studies notes that almost 20 percent of all foreclosures are rental properties. Another 2008 study indicates that rental properties could be involved in 38 percent of foreclosures nationally and approximately half of foreclosures in Nevada, Illinois, and New York.
[1] According to a 2008 study by the National Low Income Housing Coalition of twenty metropolitan areas, roughly 40 percent of the recent foreclosures nationwide are of homes likely to be occupied by renters: non-owner-occupied single family and multifamily rental homes.
[2] This has serious implications for many of the tenants of these units since when a rental property is foreclosed upon, families' options for retaining or restoring stable housing vary substantially depending on the community.
Three strategies local and state governments can take to protect renters in the case of foreclosure include:
Adopt laws that prevent tenants from being evicted due to foreclosure
In most cases, tenants are not protected from eviction once their home is foreclosed on because of state "first in time, first in right" laws, which maintain that if the mortgage was recorded before the tenant signed the lease, then the lease becomes obsolete if the property enters foreclosure.
There are three main exceptions that protect renters in the case of foreclosure. The first two exceptions are for recipients of Section 8 vouchers and tenants living in rent controlled units, who are able to maintain their leases after foreclosure by law. [3] The third exception is the more general policy of several states (including New York, New Jersey, and New Hampshire), a number of cities and the District of Columbia to require "just cause" as a condition for eviction. These laws protect renters by ensuring that landlords can only evict with proper cause, such as not paying rent on time. In general, foreclosure does not count as a "just cause" to justify eviction in these locations.
In March 2008, the State of Massachusetts filed a bill to include "just cause" protections for renters in properties that became lender-owned through foreclosure in the past three years. Click here for more information about just cause laws. | The National Low Income Housing Coalition (NLIHC) has researched legal protections of renters, by state, in the case of foreclosure. Click here to leave this site and view a comprehensive list of resources and articles that NLIHC has compiled. Among the resources, you can view a working document that lists foreclosure and eviction practices for renters by state. |
Adopt or increase requirements for notice to tenants of a pending foreclosure
A renter may not have any warning that the property they are living in is going through foreclosure until they receive notice of eviction. The new property owner (typically the mortgage lender) can evict the occupants with as short as 3 days notice in some states. A number of states are developing policies to ensure that tenants receive warning of a pending foreclosure and to extend the period that they can remain in the home after a foreclosure.
In
Minnesota, a series of bills passed in 2007 require landlords to notify tenants if a property is in foreclosure and give tenants more rights to maintain or restore utility service when the landlord fails to pay the bill. Other cities and states are following suit. The
Baltimore, Maryland, City Law Department has drafted legislation to require the new owners of foreclosed apartments to give renters more notice of foreclosure sales, with penalties for building owners who fail to do so.
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4] In January 2008, state officials in
Rhode Island drafted legislation that would require lenders to inform renters of pending foreclosures in writing at least 60 days prior to eviction and, like Minnesota, ensure that tenants have the same level of basic utility services during that period. Under the proposed legislation, the state would also take measures to ensure that renters are given information on legal and housing counseling resources to assist with the transition period and the search for a new home.
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5]
Ensure that foreclosures do not harm renters' future housing optionsIt is a common practice among landlords to reject an applicant if he or she has been evicted from a prior rental property. However, when the eviction is due to a foreclosure on the house or apartment, rather than the renter's actions, this policy may not make much sense. Eviction can also damage a renter's credit rating, making it difficult for a renter to find future housing or get loan approval. Communities may wish to adopt policies that make it easier for renters to access new housing after foreclosure.
A bill passed in
Minnesota in 2007, eliminates an eviction notice from a tenant's rental record if they vacate a rental property because of the owner's foreclosure.
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6]
Click here for more information about Minnesota's rental protection bills.
[1] Renters and the Housing Credit Crisis. 2008. By Danilo Pelletiere and Keith Wardrip. Poverty and Race, Vol. 17, No. 4 (July/August 2008), pages 3-7.
[2] The Costs of Maintaining Ownership in the Current Crisis: Comparison in 20 Cities. [PDF] April 2008. By Dean Baker, Danilo Pelletiere and Hye Jin Rho. Washington, D.C.: National Low Income Housing Coalition.
[3] Renters in Foreclosure: What are their Rights? By Janet Portman. NOLO.org
[4] Foreclosures Put Renters on the Street. By Daniel J. Sernovitz. April 4, 2008. Baltimore Business Journal.
[5] New Law Would Help Renters. [PDF] By Lynn Arditi. The Providence Journal. January 12, 2008.
[6] Tenant Eviction Records [PDF] April 11, 2008. By C. Green. St. Paul, Minnesota: Session Weekly. Page 9.
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Facilitate rental options for former homeowners
Increasingly, local and state governments are boosting the resources available to homeowners for foreclosure prevention through housing counseling, education, and outreach. But what if foreclosure is inevitable or a family has already lost its home?
Several states have developed foreclosure prevention task forces and adopted recommendations to help keep many families in their homes and to dispose of foreclosed properties in a speedy and effective manner. The Ohio Foreclosure Task Force, for example, includes seven recommendations in its final report (PDF) to assist with community stabilization as the number of vacant properties increases due to the rise in foreclosed properties. Click here to learn more about strategies that state and local governments are using to deal rising inventories of vacant and abandoned properties.
To date, however, relatively few policies have focused on meeting the needs of families who are trying to recover from foreclosure. One of many consequences of foreclosure is damage to the former homeowner's credit score, which can make it very difficult to rent or find new housing. Families forced to move through foreclosure -- whether the former homeowners themselves or renters that were renting from the former homeowners -- also may incur substantial costs for moving and security deposits that they may find difficult to meet. The inability of such families to secure housing may become a strain on community resources over the long-run.
Although there are limited examples of government agencies providing assistance during the transition/recovery process, a paper by the Progressive Policy Institute, Gimme Shelter, offers two federal policy recommendations that can be adapted and applied at the local or state level. They include: - Adopt a first-time homebuyer tax credit (similar to the District of Columbia's first time homebuyer tax credit) in jurisdictions with high foreclosure rates and extend eligibility to those that have lost their home to foreclosure in addition to first-time homebuyers.
More information on these recommendations can be found in Gimme Shelter [PDF] | Solutions in Action |
The Massachusetts Foreclosure Prevention Plan
The Massachusetts Foreclosure Prevention Plan includes an innovative provision to assist families during the foreclosure recovery process. The Plan calls for participating lenders to provide $5,000 to housing counseling agencies for each of their borrowers served. The money will go towards the transition costs associated with moving into a new home and paying a deposit for first and last months' rent. Any remaining funds will go back to the housing counseling agency to offset their administrative costs for providing services.
Transition resources will be limited to borrowers that meet specified criteria and are working with a qualified housing counselor (approved by NeighborWorks, CHAPA, or HUD). As of May 2008, two lending agencies have agreed to provide transition funding.
Click here for a PDF with more information about the Massachusetts Foreclosure Prevention Plan. |
Other policy recommendations worth considering include:
- Provide funding for land banks to buy foreclosed properties and rent them back to the former homeowners;
- Provide funds for credit repair counseling;
- Provide assistance with first- and last-month’s rent, security deposits, and the housing search process.
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Establish a foreclosure prevention task force to facilitate a comprehensive approach
Connect struggling homeowners with immediate assistance
Reduce the risk of foreclosures in the future
