"What happens often is that after a foreclosure, a broker or an agent comes to the house and, as though the law didn't exist, tells renters the house has been foreclosed and they have to leave," says Judith Liben, senior housing attorney at the Massachusetts Law Reform Institute.
The law Liben is referencing is the federal Protecting Tenants at Foreclosure Act, passed in spring last year and intended to remain on the books until 2012. It was intended to mitigate the collateral damage from the foreclosure epidemic by making banks give tenants on month-to-month leases 90 days notice before evicting them following the home owners' foreclosure; and by ensuring that tenants in good standing with year, or multi-year, leases couldn't be evicted mid-lease following a foreclosure. The new owners would, according to this act, have to honour the terms of the lease, keep up repairs on the property, and repay the tenants' security deposits upon completion of the lease.
Housing advocates cheered the law as representing a signal victory for struggling tenants in an increasingly brutal real estate environment. In the months since it was passed, however, many have concluded that in practice it is a largely toothless wonder: most tenants don't know about its existence, many banks – desperate to evict tenants living in foreclosed homes so that they can more easily sell the properties – have continued sending out illegal eviction notices; some even hire bailiffs to change the locks and to throw possessions out onto the street. And the federal government has no real mechanisms to enforce the act's provisions.
It is not uncommon for tenants in these situations to come home and find intimidating, anonymous, and legally misleading, posters stuck to their doors. One such starts with "Attention!! This property has been foreclosed and is now bank-owned. The eviction process has started. The property is being monitored." The words are in bold and the text is circled for emphasis. Another begins: "To whom it may concern: We were informed this property was vacant. We have changed the locks." Another resorts to financial intimidation: "The eviction process has been started by the bank. It is in your best interest to avoid having an eviction added to your credit report. It is very difficult to rent a property with an eviction on your credit report."
That homeowners have been hammered by subprime mortgages, by the collapse of real estate value, and by the broader economic malaise, is well-documented. But, out of the spotlight, more and more rented homes go into foreclosure: many tenants continue to pay rent to delinquent landlords, only to subsequently find they have been giving their money to a person who no longer owns the property. Others have been summarily evicted, having to scurry to find new homes – or ending up homeless. Many have lost the security deposits on their old rentals to owners who have simply disappeared. Others have seen their credit records impacted by being evicted, despite the eviction not being the result of their own financial failings.
The problem affects all kinds of people – from affluent families living in large suburban tract houses down to recipients of federal Section 8 housing vouchers. Some local housing authorities don't want to go to the trouble of establishing relationships with new owners when a homeowner defaults. "It's administratively confusing to have tenants without a readily identifiable landlord to work with," Liben explains. "These are very overworked, under-resourced agencies." And so, they tell their Section 8 clients to pack up and leave.
When the Boston Housing Authority released a study of 1,807 homes sold at foreclosure auctions in the area from June 2007 through March 2008, it found over 15% were lived in by tenants who received Section 8 assistance. Many others were likely lived in by non-subsidised tenants. In fact, far more of the foreclosed properties examined were lived in by people who rented them, not owned them. Across the country, an organising group called Tenants Together estimated that in 2008 200,000 families in California alone were put at risk of being evicted from homes they rented because of their landlords' inability to meet mortgage payments. The National Low Income Housing Coalition believes that throughout America up to 40% of families at risk of losing their homes during foreclosure proceedings rent.
In big cities and small, researchers have found similar trends. Put simply, wrote the authors of an overview essay on this crisis published in the Albany Government Law Review, "renters are innocent victims of the foreclosure crisis".
To contain the fallout from the real estate bubble's bursting, federal and state governments must find ways to protect not only at-risk homeowners but also renters. The social good isn't served by an already serious homelessness crisis being magnified. It isn't served by people having to find thousands of dollars for new security deposits and moving costs. It isn't served by the government and the courts turning a blind eye to illegal evictions. And it certainly isn't served by the abandonment of entire neighbourhoods – some homes left vacant by owners who have disappeared, others by the evictions of tenants caught in the miserable foreclosure web.
Communities can't navigate their way out of hard times unless their residents have a modicum of housing security. That security can't be attained by applying quick fixes to the mortgage industry while ignoring the vast displacement of renters that is now occurring across the land.