LISET Herrera and her three children are being evicted from their San Fernando Valley home of 10 years and have no place to go. Herrera and the other tenants were told to withhold their rent payments until the new landlord sent them new leases. The leases never came, but the eviction notice did.
Herrera's new landlord was not a greedy speculator kicking out lower-income tenants in search of ever higher rents. Instead, she and a growing number of innocent tenants are being systematically displaced by large national banks taking over properties that have gone into foreclosure. These evictions are not necessary, often illegal, and not in the interests of communities, investors and families like the Herreras.
According to a report from Tenants Together, more than a third of those impacted by foreclosure in California are tenants. Impacts include uninhabitable living conditions, water and electricity shut-offs, loss of security deposits, eviction in violation of local just cause protections or without proper notice. All of these impacts are likely violations of state and local law, yet they are occurring with increasing frequency.
Most of the predatory subprime and option ARM mortgages sold in California were made by lenders that no longer exist because they were securitized and sold on Wall Street. The loans went into trusts overseen by large national banks with a fiduciary duty to serve the interests of the investors. When loans within these pools go into foreclosure, the national bank trustees often take over the properties. And these large banks routinely and immediately move to evict any tenants living in the home.
But continuing to rent to tenants living in foreclosed homes is a win-win situation. Of course, families like the Herreras prefer to remain in their homes in order to maintain stability and keep children in their same school. Seniors and persons with disabilities, in particular, have a critical need for stability and to remain in homes that have been made accessible for them and in communities where all of their support systems exist, such as doctors, family, friends and neighbors. Section 8 subsidy holders are another vulnerable population, since they may have difficulty finding a new landlord willing to accept the voucher.
Additionally, communities benefit when long-term tenants are able to remain in their homes. Banks' immediate response of evicting all tenants leaves properties vacant, sometimes for the long term. This can lead to blight, vandalism and crime, all of which impose severe economic and quality of life costs on neighborhoods.
So, too, investor owners of the loans themselves are better off when tenants remain in foreclosed homes. Tenants can maintain the properties so that the value upon eventual re-sale is not significantly reduced. Additionally, owners of foreclosed homes, instead of holding a wasting asset that no one wants, can receive a monthly income stream from rental payments. In fact, Bloomberg News estimated that banks lost $1 billion in rental income in 2008 in California alone when owners of foreclosed rental properties opted to foreclose and forgo rent. Finally, investors are not well served by national bank trustees who don't ensure that state and local tenant and just-cause for eviction protections are being followed.
National banks must immediately develop noneviction policies, where the default response is to work to rent foreclosed properties to tenants living there.
Tenants are the forgotten victims of this disastrous foreclosure crisis. They have paid their rent, lost thousands of dollars in security deposits and, having done nothing wrong, find themselves in a quandary.
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