I saw it first on Mara Hawks' blog: A Chicago area sheriff refusing to evict tenants after foreclosure.
While this isn't a complete solution to the problem, the hamsters that run the wheels in my head are turning. It can be determined MONTHS prior to foreclosure through a process called a BPO (Broker's Price Opinion) that the home is occupied by renters.
Much of this confusion can be taken care of in advance with states creating new (EMERGENCY) laws in regards to homes in default and renters.
Renters currently MUST STILL pay a landlord who defaults in our state. We need to demand that the law changes that the servicing company can collect the rents on a property in default and keep it in an escrow account until the trustee's sale just in case they can bring the mortgage current. We all know there are ways to stall foreclosure so for the stalling landlords wanting to collect a couple of extra checks, this could keep it out of their hands.
After the trustee's sale is held, the money is released to the noteholders. Instead of throwing another property on the market, they continue to rent the property for 2-3 more months per the lease terms. After that 2-3 months they must determine fair market value and the tenant can sign a new lease on the noteholder's terms.
Of course the noteholders and banks and servicing companies do NOT want to hold assets so they would have to form relationships with permitted property managers to manage the property.
So, problem solved, money is still going to be coming in to the noteholders for the property, inventory can decrease and the real estate markets can stabilize through this turmoil. Holding costs will be minimized, asset fire sales which undercuts EVERYONE's property values can slow down and then maybe we can try to solve world peace :)
Renee,
Thanks for the post. I like your proposal, just shows that those most familiar with the issue have the better solutions. When do you leave for Washington? Let's make this one a federal mandate as part of the bailout amendments.
Renee, this is one of the most carefully thought out AND helpful article to find a solution to the problems facing many instead of willy nilly pointing fingers or throwing taxpayers money at the problem.
Second Williams remark..when you do you leave for Washington?
Hi Renee that sounds like a great plan. I saw Mara's post and thought the same thing. Gutsy move of the sheriff's part though.
Renee - in theory this is a wonderful plan. The 'hangup' would come from the banks themselves. They do not want to hold a property and have to maintain it. They are all about not increasing their expense in maintaining the property after foreclosure.
Sad part is ... if the banks would maintain and do some basic improvements, then their inventory of houses would scale down and they wouldn't be carrying bad paper for years on end.
I'm going to look forward to your announcement when you run for Congress.... :)
Renee, this is a great solution, for the money to go to the holding company. I have seen renters put out on the street here too. Now some of the REO appraisals are drive by appraisals so they never knock on the door on go in.
Great post and an excellent suggestion. The owners in default who still collect AND KEEP the rent payments without paying on the notes should be charged with fraud or some other criminal infraction. During the S&L Crisis in the late 80's and early 90's there were a number of crooks in Texas and elsewhere who would purchase non-qualifying assumptions, rent them out and keep all of the proceeds. after along time , sometimes years the bank would finally get around to foreclosing and the renters were out on the street. This was in every price range! There are always those who are happy to profit by taking a bad situation and making it worse! I enjoyed this post. Thanks
I like the plan as well. It is pretty rotten that landlords would collect rent but not pay their mortgage. I think their should be a higher penalty for that for there is no excuse in these cases. Might as well have the tenant just pay the bank directly if the landlord is not going to. Unfortunately, it just does not work like that... In most cases the tenants rights are far greater than the landlords... but not in this case.
William: I agree but will never leave for Washington :)
Kris: I am staying put but thanks for your vote of confidence! These landlords need to be held accountable.
Bill: Very gutsy. Maybe it will force the debate on this on a national level.
Carol: No announcement! THey are already forced to pay upkeep on pools, utilities and HOAs. Why not do this through a permitted prop manager? No announcement, sorry :)
Missy: It is easy to tell even with a drive by if the property is occupied and then looking at the MLS history because we do have rentals in there! If the property is occupied then it wouldn't hurt to put a notice on the door for a renter, WARNING, THIS PROPERTY IS IN DEFAULT, IF YOU ARE RENTING THIS PROPERTY AND WOULD LIKE TO STAY PLEASE CONTACT XYZ Servicing company AT:
Russell: I would say this has to be the #1 group of people who occupy property that gets foreclosed on. I would LOVE for investigations of fraud for these types but it just ain't happening!
Christopher and Stephanie: In NV, unfortunately, tenants have VERY little rights or recourse in this situation :(
Renee.... this is an excellent issue and idea in regards to those properties with renters that go into foreclosures. I didn't really think about this much, but yes, if the borrower hasn't made a payment, do you think they will make payments while still collecting rent monies? Hell no.... good blog with a good suggestion on a topic that I haven't seen talked about at all.
Jeff: We could also give them the opportunity to buy it and for the renter (who may have never thought of buying the home) time to get their financing ducks in a row. We could give someone an OPPORTUNITY while the noteholders, servicing companies and banks still make $$$.
I am in shock that no one has brought up liability yet. <something I thought out and forgot to mention> Properties that sit VACANT still have liability. Legal eagles from servicing companies who somehow get NRS CH 113 as-is where-is waivers signed so I know they have the ability to write out good waivers for rentals.
I agree that renters shouldn't be given a 24 hour notice, I have no problem with a 30 day notice, but most of these people have paid their rent and have no idea the home is gone in to foreclosure, they shouldn't lose one months rent and be put out in the street because of a landlords cash problem.
Todd: Agreed. Like I said, all money should be escrowed on top of it so the noteholders can recover. Not alot but a couple thousand here and there sure could add up, eh?