Sunday, June 10, 2007

Foreclosures often lock out renters

Foreclosure doesn't always hurt only the person whose name is on the mortgage. More renters are turning to support agencies for help.

Kimberly Edwards found out the duplex she was renting was in foreclosure only when a notice written in legalese was taped to her door. But its meaning was crystal clear: She and her two sons had to vacate the premises the next day or go to court.

As it happened, the property had been in foreclosure when she moved in and the six-month grace period was up. Edwards, a 29-year-old single mother in school with plans to become a paralegal, was paying her portion of her subsidized rent to a man who wasn't making mortgage payments.

Edwards is one of a growing number of renters being displaced because their landlords are losing their investment properties to foreclosure.

While there is no estimate of the number of renters being forced to move because their buildings are in foreclosure, workers on the front lines -- from foreclosure prevention counselors to tenants organizations -- say that starting last year, they began hearing from significantly more people caught in the foreclosure crossfire. The problem has been getting worse.

The number of investment properties entering foreclosure suggests the problem is widespread, although it is unclear how many of those were vacant. Hennepin County estimates that in the first quarter, about 45 percent of foreclosed properties could have been rentals, up from about 33 percent in 2006. Ramsey County estimates 43 percent in the first quarter.

Beth Kodluboy, executive director of the Minneapolis tenant advocacy group Home Line, has seen a steady increase in foreclosure-related calls. Through early June, the group took 77 calls -- as many as it did in all of 2006.

Cheryl Peterson, senior mortgage foreclosure prevention counselor for Twin Cities Habitat for Humanity, said she's been getting more and more calls from renters in the past year. "They don't know what to do," she said. Neither does Peterson, who is set up to work with homeowners, not tenants.

When displaced renters call, she explains the complicated and lengthy foreclosure process. She does what she can to refer renters to organizations that may be able to help with legal matters or with new housing, such as Legal Aid or tenant advocacy groups. Peterson also gets "a lot of calls from people who own several properties in north and south Minneapolis." she said. "Juggling the financing of multiple mortgages ... is beyond the foreclosure counseling programs's area of expertise because it's a business venture."

She blames the increase of investment property delinquencies on a mixture of subprime lending and small-time landlords who "couldn't afford the properties to begin with," and were dreaming of making it rich in real estate. But many took on more debt than they could afford, their adjustable mortgage rates spiked, or they couldn't find renters. They stopped making repairs. Then utilities got shut off.

Some landlords continue to pocket rent long after they stop paying the mortgage, allowing a tenant to learn of the foreclosure only when a deputy knocks on the door to hand them a foreclosure notice.

Telltale signs

Tenants advocates say that clues of foreclosure typically show up long before that.

For Edwards, the first sign that something wasn't right at the duplex at 36th Avenue and Washburn Avenue N. came in August, when the water was shut off for a couple of days. Her landlord, who lives in Colorado, also was slow to have a handyman come and fix the radiators, which were blazing hot in summer.

There were other signs. "He couldn't rent the other half of the duplex and the house was on the market, too, the entire time," Edwards said.

The court granted her 30 days to vacate, which gave her until just before Christmas to leave. "My kids didn't have a Christmas," she said.

Happy with the neighborhood, where she said "it was OK for my kids to ride bikes up and down the street," and lacking money to move, she tried to convince the bank holding the mortgage to let her pay rent directly to it and stay. But she recalls being told "absolutely not, because they didn't want to be a landlord."

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