What happens to renters in a foreclosure?
January 12th, 2009 | 
Author: There have been a number of newspaper stories about people being put out of their rental homes even though they had paid their rent on time because the home was being foreclosed. Some even lost their security deposit in the transaction. With the announcement of a three month reprieve on Fannie and Freddie foreclosures, renters were also getting a reprieve. The following is a two article series by Rich Dansereau from the Positive Real Estate Professionals blog site. If you are a renter and are concerned about what will happen to you in a foreclosure, take a close look at the second part. (These is Fannie and Freddie rules only and don’t apply to other lenders.)
Via Rich Dansereau of Rich Talks Real Estate
In November of 2008, Fannie Mae and Freddie Mac announced a three month reprieve on foreclosures for its seriously delinquent homeowners. They were quickly joined in this moratorium by JP Morgan Chase. This reprieve, though not the answer for all homeowners delinquent on their mortgages, would allow homeowners to explore the options available to them. Today, Fannie Mae and Freddie Mac announced a three week extension to the foreclosure moratorium (announced a three month reprieve on foreclosures for its seriously delinquent homeowners. They were quickly joined in this moratorium by JP Morgan Chase. This reprieve, though not the answer for all homeowners delinquent on their mortgages, would allow homeowners to explore the options available to them. Today, Fannie Mae and Freddie Mac announced a three week extension to the foreclosure moratorium (CNNMoney.com).
Today’s announcement comes one day before the moratorium was set to expire. Fannie Mae and Freddie Mac have agreed to the three week extension to allow those seriously delinquent homeowners who qualify for a streamline mortgage modification program and choose to participate in it the time to do so. Fannie Mae and Freddie Mac anticipate that up to 6,000 homeowners could save their homes from foreclosure while obtaining a low fixed interest rate mortgage with more favorable terms and affordable payments.
Via Rich Dansereau of Rich Talks Real Estate
I posted earlier today on the three week extension on the foreclosure reprieve that was announced by both Fannie Mae and Freddie Mac. As I thought more about the extension and what it could mean for thousands of homeowners, I began to wonder what it might mean for renters as well. It might seem odd that renters, and not just homeowners, would see any benefit in the foreclosure reprieve, let me explain.
There were several news stories that mostly ran on local news stations this past summer and fall about the plight of renters who had paid their rent on time and to the appropriate parties but found themselves facing eviction. This may sound odd but when you realize that the property owner, who received in good faith the rent payments from his tenants, was not meeting his financial obligations to the lien holder on his property then the issue becomes clearer. In many of these instances the landlord, a.k.a. property owner, had neglected to pay his financial obligation and was now losing his property to foreclosure. When the foreclosure occurred the bank who now owns the property oftentimes immediately evicted the tenant who had been faithfully paying their rent on time. Many times the possibility of this type of thing occurring did not even cross the mind of the tenant who felt safe in the knowledge that they had met all of their responsibilities.
So how does the reprieve come into play in this situation? Fannie Mae announced in December, 2008 that renters in these foreclosed properties would not face eviction as long as they had a legitimate lease and were current with their rent. This is good news for many renters who may have been concerned about this but keep in mind that only Fannie Mae has this National REO Rental Policy in place. The three week extension on the foreclosure moratorium should give Fannie Mae the time necessary to more fully implement this program (Source: CNNMoney.com).
Thanks Rich for this information. I am sure there are a number of people that have been wondering what would happen to them if they found themselves in this situation.
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I appreciate the recognition of my posts on your blog. I really feel that both the three week foreclosure reprieve and the Fannie Mae National REO Rental Policy that they have implemented is extremely important for both homeowners and renters.
Rich Dansereau’s last blog post..PREP welcomes Lori Palermo on board.
Right you are Rich. That is what we are both about, education and in this changing environment, there is a lot to keep people up with.
Good article Fred. I had written about the freeze ending, but wasn’t aware homeowners had gotten 3 weeks. The Renter’s aspect is a good idea as well. I’m curious though, do the renter’s get to finish out their lease? Do they just make rent payments to Fannie during that time?
I don’t have the answers Johthan. I think each one will be treated individually but at least they won’t be kicked out immediately under this program.
My landlord just called us today & said that she was because our lease was over in march and we have been paying month by monthforour rent,that we are the best tenants and her house has been finalized in forclosure and we can stay for our deposit and move when bank evicts, I would like to know our rights for being great tenants, paid on time ,never late, kept home in great condition,it was her fault not paying Mortgage. What do we do?
In a case like yours, I would contact the bank as soon as possible and see what they can arrange with you. You might also seek the advice of a legal professional. I have no idea where you are so I don’t know what the laws are in your area. Plus, I don’t give legal advice, I leave that to those that are qualified.