When the landlord can't pay the rent

A New York apartment building

TEXT OF INTERVIEW

Tess Vigeland: Whether you believe a housing bailout is necessary or a terrible idea, there is another true victim in the mortgage mess: the renter who's living in a house that's about to foreclose.

Aleksandra Todorova is with SmartMoney.com.


Vigeland: Tell us what's happening in this situation.

Aleksandra Todorova: Well, the problem for renters is that for them it's really out of the blue. They're not the owners of the property. So, the landlord has been foreclosed on and what happens after foreclosure is typically the new owner -- these days mostly the banks -- want a property without any tenants in it, so what they do is they evict whoever lives there. Even if you have a lease, even if you signed a one-year lease a month ago, if that house is foreclosed on, you basically lose your rental.

Vigeland: How widespread is this problem at this point?

Todorova: No specific numbers exist as of yet. Some estimates have put the proportion of rental properties in foreclosure at 20 percent on average throughout the country, but in some states like California, Florida -- basically the states that had this huge run up in real estate prices, where you saw the most speculators buy real estate -- there you could get as much as 30 percent or more of the properties that are foreclosed on basically were purchased by investors. So, you potentially have people living there as rentals.

Vigeland: How is it possible that a renter can just be thrown out on the street? Don't they have any rights under the lease, even when the bank takes over the house?

Todorova: Unfortunately, that's the thing. In most states, a foreclosure basically invalidates your lease. It's all a matter of good will to let you stay until the end of your lease or kick you out.

Vigeland: Wow. Is there any recourse on the part of the renter? Can you get any of your money back, even say, a security deposit or a pet deposit?

Todorova: The problem is that while technically, yes you can and you are entitled to your deposit and you could even take your landlord to small claims court, it's all a question of whether you can collect the money. Don't forget, these landlords are people who themselves are in big financial trouble.

Vigeland: Right.

Todorova: You have a line of creditors, so you're really at the end of the line.

Vigeland: This is awfully scary to think about for anyone who is renting right now. Is there any way to know whether this is coming down the pike for you? Do you have any right to go and ask your landlord if they're in any sort of financial trouble that would lead to a foreclosure?

Todorova: You absolutely could. Whether they would tell you, that's another question. It kind of sounds a little unfair that a landlord can research you and can pull your credit but tenants very rarely, if ever, can research their landlords. You could ask your landlord to give you a copy of their credit report; you could use that as a negotiating strategy, tell them "I will not move in until I see everything is fine on your end." Or, once you're in your rental already, you could check whether your landlord has already defaulted. This is very easy to find. When the landlord defaults on their payments, when they stop making their payments to the lender, the lender will file a notice of default. If you find something, you have maybe a few months to figure out what your next step is. If you don't, then that's good news.

Vigeland: Aleksandra Todorova is a senior writer with SmartMoney.com. Thanks for helping us out today.

Todorova: Thanks for having me Tess.

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