It’s obvious that the subprime mortgage crisis of the 2000s has had significant effect on homeowners, causing many people to lose their homes. Another group that has been damaged by the high number of foreclosures has been people who rent homes. When people rent homes that will be foreclosed upon due to the subprime mortgage crisis, renters have little to no rights, despite having paid their rent on time.
Some renters aren’t made aware that their homes are in foreclosure until after the proceedings have begun. Many are suddenly faced with the prospect of moving quickly, and since others who are leaving their homes due to foreclosure are also seeking rental properties, the rental market is becoming increasingly competitive. Competition for rental properties means higher rents and less choice.
When a renter first hears of the foreclosure from a bank or lending company, there are a few things the renter can do. First off, Congress is considering measures that might ultimately give renters 90 days to leave foreclosed homes, but thus far legislation regarding this has not passed. Continued fallout from the subprime mortgage crisis may make such legislation more attractive or inevitable in the future.
Many banks and lending companies want rental tenants to leave quickly, and they may be willing to pay for it, in an informal program called cash for keys. A certain amount of cash, perhaps $1000-2000 US Dollars (USD) may be offered as incentive for the tenant in occupation of the foreclosed property to leave. Cash for keys isn’t a guarantee, but you can certainly talk to the lending company about whether it has this program.
Another way in which some renters have avoided evictions, since the subprime mortgage crisis began, is to create a new rental agreement with the home’s new owner. For this to be effective, the home probably doesn’t sell immediately or the person or agency purchasing the home plans to continue to rent the property to someone else. Apartments and duplexes are most likely to continue to be rental properties, while new purchasers may immediately occupy single-family homes.
It may be difficult to know the intent of the purchaser, and sometimes there can be several months, or even a year or more when the property stays on the market. When lending companies repossess a home, they are facing some new problems that might make your continued rental beneficial. As more homes have flooded the market, there has been a rise in vandalism in empty houses that are not selling. A good argument can be made to the person acquiring the house to allow renters to continue in the home so such vandalism does not occur. Renters should probably still plan to move quickly, though, since a lending company is usually interested in selling the home rapidly.
At present, in most states, occupancy after foreclosure is dealt with in the following manner: Tenants are usually given 30 days to leave. There may be exceptions to this rule in rent-controlled areas if the tenant has a lease. But lending companies are usually not required to honor the lease, and if the previous owner breaks it, the only recourse is to sue the previous owner.
Money sued for may be hard to collect if the person has suffered heavy losses due to the subprime mortgage crisis. At the very least, it is hoped that former owners will give back deposits as soon as possible so renters have money to make deposits on new rentals, but some previous owners don’t, and the matter must be addressed in small claims court. For people in lower income levels, the ability to afford moving and making a new deposit can be a significant hardship, especially when the previous owner won’t return the deposit.
Renters are viewed as collateral damage of the subprime mortgage crisis. It’s estimated that approximately 20% of foreclosures are on property that is rented out. It can thus be stated that about 20% of the people scrambling to find a place to live in after a home foreclosure are habitually renters, and may have fewer resources. Renters are advised, since the subprime mortgage crisis is not over, to research property ownership and status before renting. Just as people who rent check a renter’s credit, you may want to ask for verification of the type of loan the person has, and check to be certain that home is not in danger of foreclosure.