Arizona Renters Left Vulnerable after Commercial Foreclosures

March 19th, 2009 by Matt DiChiara| Posted in Multifamily Foreclosures | 3 Comments »

Recently we came across an article via the Rainmaker Group’s twitterstream about how tenants in a Chandler, AZ apartment building caused a bit of a kerfuffle after they found their security deposits gone, the apartment in serious neglect and yet still somehow bound to their apartments by their leases.

Apparently, the owner had abandoned the property, as well as some others near Phoenix, after defaulting on hundreds of millions in loans. In this case, ‘abandoned’ meant that the owner simply stopped paying utility bills, the salaries of onsite staff and allowed the property to fall into disrepair.

Tenants were not even in a position to understand the gravity of the situation until a utility company informed them that their days with running water were quickly going out of style. It was then that tenants learned that their apartment was being managed by a court appointed receivership.

Receivers are appointed by courts to represent the creditors that are owed money when a company defaults on a loan. In this case, the receiver becomes the de facto property manager, collecting rent, keeping up the property, etc. Most of the time, a receiver will sell the property, usually at a substantially lowered price to extract any kind of money to refund creditors.

This situation is not very enviable as a renter. Of course, renters should be better off under the receiver than under a rapidly deteriorating limited liability corporation as receivers will try to keep occupancy rates up and the property looking respectable in order to attract a decent sales price.

However, renters at these properties, especially in some states, are at the whim of the receivership, who can either terminate the lease, or hold renter’s to their original terms. In some states, like Arizona, state law provides scant protection for renters who live in a property that is foreclosed on.

At the apartments in question, residents were held to their original leases, even though, according to tenants, the complex was neglected; they claimed that garbage was not removed, the pool had turned a shade of green not seen since the original Ghostbusters and that the grounds were generally unkempt.

We are guessing that the renter’s were particular upset when they learned that the security deposits that they had paid to the original owner were not part of the assets handed over to the court appointed receiver and therefore not getting paid back.

When a local fair housing advocate attempted to garner the inertia of the silent majority at the apartment complex by organizing a meeting of residents, the police were called to break it up.

We are digesting the National Law Center on Homelessness and Poverty’s report, Without Just Cause: 50-State Review of the (Lack of) Rights of Tenants in Foreclosure, to provide a summarized comparison of tenant’s rights across states. We hope to be able to provide that for tenant’s who are unaware of their rights and responsibilities early next week.

For renters, have you ever inquired about the financial status of the owner before moving into a rental apartment?