Foreclosures Leave Tenants Out in Cold, Too

Saturday, June 21, 2008
Leslie Berkman
The Press Enterprise

The whirlwind of foreclosures hitting Inland counties is ousting renters from their homes, often with little or no warning.

"A lot of these people are just innocent bystanders in a tornado," said John Bouzane, a lawyer and owner of First Eviction Services, a San Bernardino law firm that represents lenders seeking to repossess and resell homes whose owners have stopped making mortgage payments.

The California Apartment Association estimates that a fourth of foreclosed single-family homes are occupied by renters.

Real estate agents who specialize in marketing foreclosed houses for banks say, frequently, tenants are shocked to learn their leases can be canceled and their lives disrupted even though they have dutifully paid their rent.

Nor is it always certain that tenants in a foreclosed property will get back their security deposits. Their chances are best if the house was leased through a property management company that retains the money in a trust account, but some management companies allow deposits to be kept by landlords, who may not be willing or financially able to return them.

"A great number of owners of property simply do not let their renters know they are in (default on their mortgages). They will continue to collect rent and also bring in new renters," said Darrell Moore, deputy director of Inland Counties Legal Services.

Moore said each week he sees tenants arrive in court for an eviction trial who are desperate and in tears, hoping to contest evictions. He said generally the law is on the side of the lenders who have given them 30 days notice to pack and leave.

The best deal the renters can get, say real estate agents and lawyers, is a lender's offer to pay them "cash for keys," from $500 to about $2,000, depending on the lender and situation, in exchange for vacating a repossessed house early and not destroying it on the way out.

Experts advise tenants against staying until they get evicted because that will mar their credit and make it tough to rent another house.

Living Paycheck to Paycheck

Mike Novak-Smith, an agent with Re/Max Results in Moreno Valley who specializes in selling foreclosed homes, said 50 to 60 percent of the houses he lists had renters, some of whom first realized their predicament when he told them to move.

Moving in a hurry poses a challenge for ousted tenants. "The renters generally are living paycheck to paycheck and so don't have the money to put down the security deposit and first month's rent on a new place," Novak-Smith observed.

John Doherty, chief of staff for Assembly Majority Leader Alberto Torrico, D-Newark, who is trying to get greater legal protection for tenants facing eviction as a result of foreclosure, said it is unlawful for landlords to collect rent without paying the mortgage on houses they have owned less than a year. Nonetheless, he said, tenants risk breaching their lease if they stop paying rent.

"You feel almost robbed in a sense," said Edward Rivera, 33. Rivera said he, his pregnant wife and two children must soon find a new home if their landlord fails to get a loan modification on the five-bedroom house they are renting for $2,250 a month in Corona.

Rivera said he and his wife leased their home through a property manager. The owner, who had just moved out of the house, would stop by occasionally to make renovations and they would share a beer, Rivera said. "We didn't know anything was wrong," he said.

Signs of Default

But that changed in April when two real estate agents dropped by and, assuming that Rivera was the homeowner, offered to help him sell his house that they said was in default. Rivera said he later learned the owner was five months behind on his mortgage payments and trying to restructure his loan.

Landlords in default on their mortgages tend to entice tenants with very low rents and sometimes advertise that they will accept applicants with poor credit, said Pete Nyiri, owner of Top Producers Realty in Corona.

Some tenants also are being scammed by people who take a deposit and first month's rent on an empty house in foreclosure that they don't even own, he added.

Nicolette DeMartino, 36, said after she and her roommate lost a house in Lake Elsinore to foreclosure two years ago, their "messed up" credit made it difficult for them to find a landlord who would rent to them. She said someone she had considered a friend found her a five-bedroom house in Corona that she rented for $1,000 a month.

She said she, her roommate, daughter and cousin moved into the house in March. In late May, a real estate agent representing the bank that had seized the house knocked on their door and told them to move.

"I asked who he was and what this was concerning, and I just started crying," she recalled.

When she tried to contact her friend who leased the house to her, she said, she discovered he was no longer at the number he had given her.

The lender agreed to give them $2,000 if they moved out in 10 days, she said. Early last week she was hunting for another place to rent.

Legislation sponsored by the Western Center on Law and Poverty and carried by Torrico, would require tenants, in addition to owners, to be notified of a possible foreclosure sale, double to 60 days the amount of time that tenants have to move after a foreclosure, and clarify in the law that a new owner, whether a lender or buyer, is responsible for returning a tenant's deposit. The bill, AB 2586, has passed the Assembly and is scheduled for a hearing Tuesday in the Senate Judiciary Committee.

Check and Recheck Records

Some property managers like Bill Santoro, owner of National Realty Group in Moreno Valley, say in response to the tenants' plight they are screening potential clients to avoid leasing houses headed to foreclosure. Still, Santoro said such checks are not foolproof because lenders generally don't record a notice of default until a mortgage is at least three months delinquent.

Nyiri advises tenants he removes from foreclosed homes to be careful when they rent again. He advises them to have a rental agency guarantee in writing that the house they are planning to lease is not in default and then to recheck the county records every two months.

Paula Schnurr, 60, said after the three-bedroom house her family rented in Corona was foreclosed on early this year, she learned that the owner never made a mortgage payment although they had been paying rent of $1,875 a month since June 2007.

She said after a struggle she got back her deposit and found another house to rent. But she said she worries that the ordeal could be repeated.

"It is hard to trust people any more," she said.

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