"A foreclosure doesn't differentiate between a homeowner and a renter residing in a defaulting property," said U.S. Senator Chris Dodd in a recent statement supporting protections for residents of foreclosed property. This is an important recognition of the fact that both defaulting homeowners and tenants are impacted by foreclosure. It is time for California's policymakers and media to acknowledge and address the impact of the mortgage crisis on California's tenants.
California foreclosure rates are particularly high. Cities such as Sacramento, Bakersfield, Riverside and Stockton have been among the hardest hit in the nation. Stockton is one of the top-three cities in the nation for foreclosures, with rates increasing by over 250% from 2006 to 2007. In a press release just last week, Governor Schwarzenegger noted that California has been "impacted more than any other state by the national home foreclosure crisis."
Homeowners are not the only people displaced by foreclosures. Banks typically evict tenants upon foreclosure because they prefer to sell the property vacant. The resulting displacement of tenants is a largely untold story of the mortgage crisis.
There is currently no definitive data as to exactly how many tenants are being displaced due to foreclosures. According to a recent survey by the Mortgage Bankers Association, one in seven foreclosures nationwide was property that was not owner-occupied.
In California, the rate of foreclosure on non-owner-occupied properties is even higher than the national rate. An estimated 22% of foreclosures in California this year involved properties that are not owner-occupied. (Plus, some of the "owner-occupied" properties also include tenants, either because the property contains more than one unit or because an owner-occupant sublets rooms to tenants.)
The media have covered the mortgage meltdown by its impact on homeowners and on the economy. Missing from the story are the tenants who are forced to leave their homes because of foreclosures.
The San Francisco Chronicle, for example, has covered the impact of foreclosures on defaulting owners in recent articles about Bay Area hotspots like Vallejo, but the paper has largely ignored the impact on tenants.
The one Chronicle piece referencing tenants in this context was a profile of a local real estate agent whose business is booming because she specializes in acquiring foreclosed properties. ("Realtor specializes in selling foreclosed homes," September 9, 2007). The article treats tenants as if they were nothing more than an inconvenience to the agent's lucrative business: "If it's occupied - about a third of the properties are, often by renters - she offers 'cash for keys' (about $500) to get the tenants to move out. Only rarely does she need to bring in the sheriff for an eviction."
On November 18, the New York Times changed the media landscape on this issue with a front-page article entitled "As Owners Feel Mortgage Pain, So Do Renters." John Leland's article poignantly begins as follows: "In the foreclosure crisis of 2007, thousands of American families are losing their homes without ever missing a payment. They are renters in houses whose owners default on their mortgages - a large but little noticed class of casualties."
Fortunately, California tenants in certain rent control jurisdictions are entitled to continue to occupy their homes despite foreclosure. Under a 1985 Court of Appeals decision (Gross v. Superior Court), the bank steps into the shoes of the former owner, and must comply with local eviction laws that limit the grounds for eviction. But this only helps tenants who live in cities where local "just cause" ordinances do not allow eviction due to foreclosure.
In most of California, banks are free to evict tenants in foreclosure cases with just 30 days notice to the tenants. Statewide legislation is necessary to provide greater protections to tenants living in these properties.
There have been recent developments at the federal level that could offer some relief. On October 22, Reps. Brad Miller (D-NC), Mel Watt (D-NC) and Barney Frank (D-MA) introduced HR 3915, the Mortgage Reform and Anti-Predatory Lending Act of 2007. Among other provisions, the bill contains limited foreclosure protections for renters. Under the bill, a successor owner would have to honor pre-existing leases, and tenants without leases would have at least 90 days before being required to vacate.
The bill passed the House on November 15th by a vote of 291-127. It is now before the U.S. Senate.
With federal legislation pending and a recent front-page New York Times article highlighting this issue, the plight of tenants in foreclosed properties may finally receive more of the media attention it deserves. Tenant advocates must actively push for coverage of this important situation. Otherwise, tenants will remain "a large but little noticed class of casualties" of the mortgage crisis.
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