MyNewPlace Blog

Last week, we wrote an article about the unfortunate circumstances that followed when a rental property was foreclosed on and a court appointed a receivership to run the property.

Our article focused on the unenviable position in which the renters were left because we wanted to highlight the variance on renter's rights after foreclosures between states. To that end, will be summarizing a recent report by the National Law Center on Homelessness and Poverty in order to provide an easy reference for renters who have questions.

Now, what we did NOT mention in this article, which was brought to our attention via Twitter was that not only were renters adversely affected by the foreclosure and subsequent receivership, but the property management staff were also put in a similarly difficult position; not only did they not have money for the proper upkeep of the apartment, but there was no money for their salaries.

Much like renters, property managers are given little notice of a pending foreclosure. At least in some states, renters are protected to some degree, whereas property management professionals sometimes can only rely on internal rumblings. As it turns out, the plight of the property management staff was even graver than the renters. Staff went unpaid for weeks and kept working.

Since a receivership had been appointed, things have improved; staff members have received emergency checks and sign on bonuses and have been promised positions with the new management companies, though they may not be given back pay.

Tomorrow, we are going to investigate further into why this transition to receivership was so difficult on both staff and renters.

Back in December we reported on some good news for renters and property managers, which was the result of Fannie Mae and Freddie Mac's lawsuit prompted decision to allow qualified renters in foreclosed properties that have been absorbed by the GSEs to remain in their homes.

After doing some research on renters rights after the rental property is foreclosed on, we found the details of the court case that brought to light Fannie and Freddie's ‘governmental responsibilities' in the National Law Center on Homelessness and Poverty's report. It appears that the GSEs, had gotten quite used to acting as private companies even as it fell under federal control.

Evelyn Colon, who had been evicted from her apartment after Fannie Mae foreclosed on the property filed a suit which claimed that Fannie Mae became a federal agency when it came under the conservatorship of the Federal Housing Finance Agency, and therefore needed to allege a good cause for any eviction. This was dictated by the Emergency Economic Stabilization Act (through which TARP funds were authorized), which required the FHFA to coordinate with the Treasury to allow tenants to stay in their homes and apartments.

What do you think? Should Freddie and Fannie be allowed to evict tenants after a foreclosure so that they can sell the property to recoup on their own losses or should they be required to operate the facility at a loss, using taxpayer dollars?

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?