FANNIE MAE HOPES TO SET A TREND - No Tenant Evictions in Foreclosed Properties, For Renters in Good Standing!
INITIATIVE WOULD ONLY BENEFIT SMALL SEGMENT OF MARKET - FREDDIE MAC CONSIDERING SIMILAR MOVE!
Long-standing policy allows lenders who take back foreclosed property to evict any tenants who remain - often, with little notice, so long as the PRIOR OWNER of the property was properly served. Often, delinquent owners would not inform tenants of a pending foreclosure, and these tenants wouldn't learn of a lender take-back until the county sheriff shows up at the door with an Order to Evict.
Although details have yet to be finalized, U.S. Mortgage Loan Guarantor and Investor Fannie Mae plans to cut these "orphaned" tenants some slack, and not ask them to leave their rented homes until the completion of their current lease term. Such tenants would have to be current on their rent payments in order to stay.
The new Fannie policy would take effect on January 9th; the company has already instituted a moratorium on evictions for properties it now controls through the holiday season. It comes on the heels of legislative action in many states, including here in Illinois, to require minimum notice before tenants can be asked to leave. The minimum notice period in IL is 90 days.
The New Haven CT Legal Assistance group has threatened to sue Fannie Mae to prevent forced tenant evictions.
Fannie's actions will only help a small portion of the market - those in foreclosed properties which had been backed by loans by sub-prime lenders, not purchased by the company, would still be subject to forced eviction upon foreclosure. Many lenders have customarily offered individually-negotiated exit terms to current tenants, or, in many cases, "cash for keys," where current tenants are offered money from the lender - sometimes in excess of $1,000 - to vacate their now-foreclosed homes.
For non-Fannie owned properties, whether or not to evict current tenants may fall to local loan servicers. Says Ted Mayer of Deutsche Bank, one of the largest holders of U.S. Mortgage Backed Securities, "the whole issue comes down to ownership" of the foreclosed properties. A given property "is held in trust by us but it is effectively owned by the hundreds or thousands of people that own a tiny sliver of mortgages in any one pool." Meyer contends it is not in the investors' authority to retain tenants living in foreclosed properties.
David Rothstein, of the Ohio not-for-profit group Policy Matters, says foreclosure filings on tenant-occupied properties in Cuyahoga County, the county in which Cleveland is located, increased 29% in 2007 versus 2006, and he expects that number to grow in the coming year. He estimates the average cost to evict a tenant and their family - roughly, $2,500.
Rothstein also contends keeping tenants in foreclosures to complete their lease terms does provide benefits to lenders. "When there's a renter in these properties they're less likely to be vandalized, they're better maintained, and it's better for the communities," he said.
Read Kelly Evans' story in the December 15th edition of the Wall Street Journal for more.
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