Fannie Lets Foreclosed Renters Stay

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Foreclosure Averted!Fannie Mae announced today that it would allow thousands of tenants remain in foreclosed homes as long as they stayed current on their rent. About 4,000 renters signed new leases and were permitted to stay in their rentals even though the property’s owners had been foreclosed on. While it turns Fannie Mae into a landlord, something it’s probably ill-equipped to handle efficiently, it’s probably the first action they’ve done in a long time that has made people smile.

The reason they’re doing it is because it makes financial sense (and they were forced to do this by the $700 billion Emergency Economic Stabilization Act). In a hot housing market, a foreclosed home can be sold fairly quickly. In the current housing market, foreclosures can sit for months, slowly (or quickly) eroding in value. By letting renters stay in those homes, instead of evicting them, Fannie Mae can leave those properties on auto-pilot and worry about the rest. Also, as someone who has considered buying rental properties, an occupied property is more valuable than a vacant one. It’s unorthodox but we live in challenging times.

I’m also glad renters aren’t getting screwed because their landlords were financially irresponsible. The renter shouldn’t be punished because the landlord made a mistake. I once knew a guy at one of my former employers who owned four homes during the housing boom. He would buy them with a low rate ARM, wait a few months, then use whatever equity he had built up to buy another. I used to hear me argue all the time on the phone with tenants about broken water heaters and I had no doubt he was a miserable landlord. Well, I heard now that all those properties are behind and now those tenants would probably be evicted.

One of the benefits of owning your home is control. When you own a home, you are in control. It may not seem like it sometimes but you truly do control your destiny, more so than if you are a renter. Unless you agreed to an ARM, your mortgage payment remains the same each year (it may go up because of taxes, but the principal and interest are the same). You won’t one day discover you have to move because your landlord was foreclosed.

That being said, I’m glad 4,000 families won’t have to be searching for a home in the winter. What do you all think of this?

(Photo: respres)

{ 7 comments, please add your thoughts now! }

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7 Responses to “Fannie Lets Foreclosed Renters Stay”

  1. Renter says:

    I think FM is doing the right thing for a change.

    I am renting an apartment and recently had the pleasure of the sheriff serving an eviction notice, although we never did anything wrong. My landlord had not paid the condo dues and the association was suing to evict him (and us) so that they could rent out the place to recoup their losses. At the moment it looks like the landlord paid up and the eviction notice will be thrown out, but its still no fun. Turns out the landlord is in way over his head and I have very low expectations for recovering my security deposit.

    This was supposed to be a short term rental while we house hunt for a place to buy in the new city we recently moved to, but has turned out into a real hassle. Not only are we swamped with court orders and have the uncertainty of the being evicted, we are stuck with the rental agreement – i.e. the landlord is getting us in a big mess while we really can’t do anything about it.

    So, if I ever rent again, in particular from an individual landlord (guy renting out a condo) I will insist on the following:
    a.) proof that mortgage and condo fees are in good standing and guarantee that he must share foreclosure and related notices with us within 1 week
    b.) ability for us (not landlord) to quit rental contract with no notice if he goes into foreclosure or we get some other eviction notice
    c.) 3rd party escrow management of the security deposit
    d.) ability to withhold $1,000 of rent for every instance that I am ordered to appear in court for landlord foreclosure and other landlord-caused proceedings

    A & B I will not back down from – and a “good” landlord will have nothing to lose. C I would really like – it is law in many states, but not required in my state so may be a tough sell and administrative hassle. D would be tough but sorely needed given how time consuming this whole crap is on the innocent renter.

  2. carla says:

    I am so glad that our landlord owns the house we rent. I have been reading heartbreaking stores about people getting thrown out of their rented homes and not getting their security deposit to boot. FM is doing something right for a change – its about time.

  3. Michael says:

    This is pretty unorthodox but it really makes a lot of sense. It’s going to have a lot of unintended consequences because FM isn’t and can’t be a landlord but anything to keep people in their homes even for a few months without costing taxpayers extra money seems like a good idea right now.

  4. Aman says:

    with all dismal news we hear today about the financial turmoil, its sort of nice to read that less people will be forced out of homes, especially during the holiday season.

    I dont want to sound like a negative person, but many people did make mistakes getting into homes they surly could not afford and used unwise financial methods (spending more than they should have)…but regardless, instead of making matters more worse, Fannie Mae is taking one good step in finding a middle road to take during these hard times.

  5. Miss M says:

    Renters were unintended victims in this crisis. Typically leases survive transfers of ownership, it’s a quirk of the foreclosure laws that allows them to be tossed out. Also it may be in the lender’s interest to keep the home as a rental for awhile, wait for the market to improve. In some neighborhoods you can’t sell a house for anything, might as well rent it for a few bucks.

  6. MyJourney says:

    This is a Gov’t Sponsored Entity it is not doing anything to be “good.” Rather, it is doing it because it is a way to get some cash flow!

    It kind of worries me, short term I think it is a great thing, but in the long term doesn’t anyone worry that for all intents and purposes the gov’t is a landlord?

  7. Linda Israel says:

    what i want to know is what happens to the tenants when fannie mae and freddie mac sale the property that they let live in and pay them rent ?

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