Foreclosures in America have sky-rocketed in the past 5 years, fueled by cheap and easy credit to borrowers during the real estate boom. And while the majority of the defaults on loans are by primary homeowners who have fallen behind on payments due to a variety of reasons, the rising rates of default are also affecting renting tenants as well. Many of the same issues that affect homeowners are also causing apartment building owners to miss payments and face default on their rental properties. These issues are often the same symptoms many borrowers are facing including lack of liquidity, weakening rental income due to increasing job loss, teaser interest rates that seemed attractive until those same rates adjust on “option ARM’s” (adjustable rate mortgages) and many other factors.
For those renters that are not even owners or participants in the real estate boom, the risk of default by landlords across the country threatens the stability of renters across the country. When a landlord defaults, rental tenants can face eviction by the bank and a property risks being repossessed or redistributed if is goes through the entire foreclosure process by its primary lien-holders.
More than 2 million owners faced foreclosure last year and this is not just condo and single family home owners. A large percentage of these defaulted loans are multi-family property owners who paid inflated prices when the going was good, and now that property prices have fallen considerably, those owners are having hard times making mortgage payments as well, and are having an even harder time refinancing or restructuring their loan commitments.
In Chicago, for example, the nations 3rd largest city by population, 32% of 2008 residential foreclosure filings were for 2-6 unit properties – these were buildings that were occupied by rental tenants that really have nothing to do with ownership default, but are now faced with the same issues as many homeowners – figuring out where to live and what can be affordable. Multi-family foreclosure cases often times take about 9 months during which time rental tenants who are up-to-date on rental payments may continue to stay in their apartments even during the foreclosure filings. Landlords are still entitled to rental payments until the building is sold or seized by the bank or lender, so if you are a renter you cannot get out of your lease terms or payment obligations to your landlord. You can continue to live in the property until notified otherwise, but be prepared that if your landlord goes into default, it is very much the same as when a homeowner has to move or consider other options if mortgage payments cant be made.
One of the worst case scenarios is learning of sheriff’s notice warning of eviction. If you are a renter in the property, you can contact the sheriff’s office to notify them that you live in the building. You will have to have documentation to prove you live in the building, and that you are current on all rental payments. If for some reason you are named in an eviction of the landlord or owner, your credit should not be affected and should be protected while the borrower/landlord faces default and having his or her credit badly hurt.