Question: My wife and I and our two teen-age children have rented a nice house near the high-school for many years. We have religiously paid the rent on a timely basis. We just learned that our landlord’s bank is about to foreclose on the house. Where does that leave us? Will we be thrown out? Pete.
Answer: Pete, this unfortunately has become a common problem in the past few years. There is always the possibility that you will be asked to leave, but there are some things you should do — and do immediately.
You received a letter from the lender’s attorney advising you about the pending foreclosure. You should call that lawyer, and ask several questions:
1. when and where will the foreclosure sale take place?
2. can you start making your rent payments to the lender, or putting it in escrow? I suspect your landlord has been collecting your monthly rent, but not paying the mortgage with those funds.
3. if the lender purchases the property at the foreclosure sale, will they allow you to stay in the property? If so, for how long? At a foreclosure sale, it often happens that no one will purchase the property. Thus, the lender actually buys back the property and will own it. However, most lenders do not want to be in the real estate ownership business and will want to get rid of the property as soon as possible.
Additionally, are you interested in purchasing the property? At foreclosure sales, it is possible to get a good deal if you are the successful bidder. However, before you go down this path, talk with your own attorney. You want to have a title search performed — before the sale takes place. You want to know all about foreclosure sales, and what your rights and obligations will be. Too many people mistakenly believe they can get a super deal by buying properties at foreclosure sales. This “ain’t necessarily so”.
Finally, you should find out what your state law provides in these circumstances. In some jurisdictions, such as the District of Columbia, if a lender forecloses on property, the owner must vacate the property. However, tenants have (or may have) stronger rights, and will be permitted to stay in the property for a period of time. Additionally, in most states in the United States, a tenant just cannot be thrown out on the street without a Court Order. This means that the new landlord — the successful purchaser at the foreclosure sale — will have to go to Court to seek an eviction Order. This will give you some more time before you have to move.
As an ounce of precaution, however, you may want to start looking for another rental property. And I do not recommend you pay any more rent to your landlord. You should put your rent in escrow with your attorney. I strongly suspect that if your landlord is having financial problems, you probably will not get your security deposit back when you vacate. Thus, you want to protect yourself as soon as possible.
Question: Regarding your column on deed in lieu being faster than a foreclosure in the case of a reverse mortgage. You dodged the implied issue of the owner no longer wanting to handle the cost of ownership for a property that is “underwater” while not opining on the moral implications of defaulting and walking away. I can assure you from my observation of the last financial crisis that the bank is in no rush to assume ownership and the related costs. Does the owner have any realistic options other than abandonment if the bank will not accept the property? If they sell it for less than the loan amount, still need a bank payoff and release of lien, which may be very hard to get if they can not get a deed in lieu. Thus continuing their cash out for a losing property. Love the column. Howard.
Answer: Howard, point well taken. You are absolutely correct that banks are not in a hurry to take over any property — especially those under water. Yes, I did dodge the moral and ethical implications of just walking away.
I know it happens all the time; we read about “zombie houses” all over the country. Many states are now enacting legislation putting the requirement on lenders to maintain those properties where the owner has just locked the door and walked away. In fact, in many cases, they don’t even lock the door.
I cannot recommend anyone to walk way. My concern has nothing to do with the lenders; I have no compassion for lenders that refuse to foreclose on a timely basis. My concern is for the neighborhood and the neighbors who are faced with decaying homes next door, grass not being cut, vagrants camping out, etc, etc. One neglected home in a community drags down the property values of surrounding homes, and unfortunately a downward spiral occurs.