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National Mortgage Settlement to Hand Out Cash to Foreclosed-Out Homeowners

Most of the $26 billion or so in this national settlement is designed to help current homeowners keep their homes. But $1.5 billion of it will go to about 750,000 who have already lost their homes to foreclosure. That’s about $2,000 each.

Who’s included?

  • The entire settlement—including this foreclosure cash restitution payment—applies only to mortgages held by the five biggest home mortgage holders and their subsidiaries: Bank of America, Wells Fargo, J.P. Morgan Chase, Ally Financial/GMAC and Citi. To contact these banks to find out if your mortgage is included, go to the special website for this settlement for their toll-free phone numbers and websites. (See the right column, under “Settlement Parties.”)
  • Your home must have been “finally sold or taken in foreclosure between and including January 1, 2008 and December 31, 2011.”
  • One state–Oklahoma—did not join in this settlement, so foreclosed homeowners in Oklahoma are not eligible for this payment.

 What are the conditions for receiving the money?

  • Although one section of the settlement website states that there’s “no requirement to prove financial harm,” the Executive Summary on the same website adds that eligible borrowers are those “who were not properly offered loss mitigation or who were otherwise improperly foreclosed on.” Sounds like some showing of improper servicing or foreclosure behavior by the bank will be required, without a need to prove that this behavior necessarily caused you financial harm. But exactly what information or evidence will be required is not clear yet.  
  • What is clear is that former homeowners will not need to release any potential claims against their mortgage holder in order to receive the money. The payment received would, however, be credited as an offset against any such other claim against the bank.

What’s the procedure and timetable?

  • Within about 90 days, a Settlement Administrator will be selected “to administer the distribution of cash to individual borrowers.”
  • Over the following six to nine months, that Administrator will work with the banks to identify the eligible former homeowners, and send out letters to them to apply for the payment.
  • If you are concerned about the Administrator having your current address, you should contact your Attorney General’s Office to have it send your address to the Administrator.
  • The amount to be distributed to each foreclosed homeowner will depend on how many people qualify and apply. And since the $1.5 billion or so pool of money paid by the banks towards these for payments also pays for “all the costs and expenses of the Administrator,” that reduces what will be available for the homeowners. (The actual amount of the pool, by the way, is actually exactly $1,489,813,925.00—I do not know the reason for that odd amount!).
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The National Mortgage Settlement’s Actual Terms Finally Released

The settlement documents of the deal that was announced more than a month ago were finally completed and filed at court on Monday, March 12. They catalog page after page of serious wrongdoing by the banks in their servicing of mortgages and processing of foreclosures.

In my last blog I said that the settlement would be finalized and made public “any day now.” It actually happened only hours later.

The settlement documents consist of hundreds of pages, but I’ll make it easy for you.

One document talks about the past, the wrongdoing by the banks. That’s the Complaint. The plaintiffs are the United States, 49 of the 50 states (all except Oklahoma), and the District of Columbia; the defendants are five of the biggest banks—Bank of America, JPMorgan Chase, Wells Fargo, Citi, and Ally/GMAC, and their subsidiaries, totaling 18 named defendants. This 99-page Complaint is the subject of today’s blog.

The rest of the documents—one Consent Judgment for each of the five banks—talk about the agreed penalties for the banks’ past wrongdoing, but mostly focus on the future: 1) where the money from those penalties is going to be spent; and 2) the new standards by which these banks are now required to service mortgages and process foreclosures.  In my next blog I’ll talk about these penalties, and how they are supposed to help homeowners who have been hurt by the banks.

To say that the Complaint is 99 pages long is misleading, because it actually ends on page 48, followed by signature pages for each of the 51 plaintiffs. And In fact the document doesn’t really get to the point until the Factual Allegation starting on page 21. The detailed litany of bank misconduct goes on relentlessly for the following 16 pages, totaling 55 paragraphs of allegations, some including many subparagraphs of even more detailed allegations. It’s difficult to do justice to all this in one blog. To try to show both the breadth and depth of the alleged misconduct, I’ll give you most of the Complaint’s outline of the types of wrongdoing, and one or two examples quoted under each one:

A. The Banks’ Servicing Misconduct

            1. The Banks’ Unfair, Deceptive, and Unlawful Servicing Processes

Failing to timely and accurately apply payments made by borrowers and failing to maintain accurate account statements; imposing force-placed insurance without properly notifying the borrowers and when borrowers already had adequate coverage.

             2. The Banks’ Unfair, Deceptive, & Unlawful Loan Modification and Loss Mitigation Processes

Providing false or misleading information to consumers while initiating foreclosures where the borrower was in good faith actively pursuing a loss mitigation alternative offered by the Bank; miscalculating borrowers’ eligibility for loan modification programs and improperly denying loan modification relief to eligible borrowers.

   3. Wrongful Conduct Related to Foreclosures

Preparing, executing, notarizing or presenting false and misleading documents, filing false and misleading documents with courts and government agencies, or otherwise using false or misleading documents as part of the foreclosure process (including, but not limited to affidavits, declarations, certifications, substitutions of trustees, and assignments).

 B. The Banks’ Origination Misconduct

   1. Unfair and Deceptive Origination Practices

In the course of their origination of mortgage loans in the Plaintiff States, the Banks have engaged in a pattern of unfair and deceptive practices. Among other consequences, these practices caused borrowers in the Plaintiff States to enter into unaffordable mortgage loans that led to increased foreclosures in the States.

 C. The Banks’ Bankruptcy-Related Misconduct

Making representations that were inaccurate, misleading, false, or for which the Banks, at the time, did not have a reasonable basis to make, including without limitation representations contained in proofs of claim under 11 U.S.C. § 501, motions for relief from the automatic stay under 11 U.S.C. § 362, or other documents.

 D. Violation of Servicemembers Civil Relief Act (SCRA)

The Banks foreclosed upon mortgages without required court orders on properties that were owned by service members who, at the time, were on military service or were otherwise protected by the SCRA.

 The 55 paragraphs of wrongdoing resulted in these five banks agreeing to pay about $26 billion in a combination of cash and other forms, to the states and to individual homeowners. As I said, I’ll tell you how this is supposed to be divvied up in my next blog.

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Federal court ruling against MERS foreclosure in Oregon comes (again) as Republican lawmakers try to validate it

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A federal judge has yet again issued a ruling that effectively questions the validity of scores of foreclosures in Oregon, a crisis the Legislature could resolve in the mortgage industry’s favor this week if bank lobbyists and House Republican leaders have their way.

In an opinion issued Wednesday, U.S. District Court Judge Michael Simon rejected a magistrate judge’s finding and rulings by two of his colleagues that big banks could avoid recording notices in local land records each time a loan is sold to other lenders or investors.

 Simon sided with two other federal judges in Oregon in ruling that lenders have violated state recording law. They’ve done this, they say, by logging sales within its nationwide Mortgage Electronic Systems Inc. and declaring MERS a “beneficiary” of the loan.

The mortgage industry created MERS to reduce the need for recording loan sales, or assignments. That enabled mortgages to be quickly bundled and sold to investors. MERS does not loan money, collect loan payments or invest in mortgages. It is, however, named in certain loan documents as the mortgagee or beneficiary of record.

Simon ruled that under state law, lenders must file a notice in county records each time they sell or transfer a note, or a promise from a borrower to pay.

MERS, he ruled, can file those notices on the lenders’ behalf, if a lender has authorized it to do so. MERS cannot, however, simply log those notices within its own database without also recording it publicly, he found. In millions of loans nationwide, it has.

In acting as he did, Simon overruled lower Magistrate Janice Stewart’s previous findings and recommendations in the case. His ruling also conflicts with opinions in other cases issued by his equals in Oregon — Judge Michael Mosman and Judge Marco A. Hernandez.

But it aligns with rulings in other cases by Judge Owen Panner and U.S. Bankruptcy Judge Frank Alley. Panner’s ruling, which also came last year as lawmakers debated the MERS issue, is on appeal to the U.S. Ninth District Court of Appeals.

-Excerpt taken from  Brent Hunsberger, The Oregonian @ OregonLive.com

See full story here

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The Terms of the Month-Old $26 Billion National Mortgage Settlement Are, Still, . . . “Coming Soon”

The settlement announced on Feb. 9 has been publicly released so far only in a broad outline of its terms. Any day now the actual agreement will be finalized and filed at court. In the meantime here are some tantalizing tidbits.

More than a month has passed since the announcement of the long-awaited mortgage settlement by the state attorneys general and the federal government with the five largest mortgage loan servicers. A special website, set up by the Attorneys General on the Executive Committee that negotiated the settlement, provides a 4-page “Settlement Fact Sheet” and also a “Settlement Executive Summary” of similar length. This website also provides some other possibly helpful information like the phone numbers for the loan servicers involved and the address, phone number and website of each state’s attorney general. But none of that is going to get you very far in any practical way because in fact the details of the settlement are still being put into writing. The “National Mortgage Settlement” has in fact not quite been settled, at least not in detail. As the website says, it’s still “coming soon.”

It’s worth reading the relatively short “Fact Sheet” and the “Executive Summary,” and to look through the rest of the website. Here are some aspects of the deal from those sources that may surprise you:

  • Although 5 loan servicers are involved in this settlement, one stands out, Bank of America, because it is obligated to pay more than twice as much as any of the others. It’s expected to pay (through a combination of cash payments, mortgage write-downs, and refinances) about $12 billion. Much of B of A’s financial exposure comes from its ownership of a huge portfolio of former Countrywide mortgages.
  • The largest portion of the settlement funds—about $10 billion—will go towards reducing the principal balance of mortgages. The banks have been extremely resistant to principal reductions, and this settlement requires the largest reductions ever. However, the amount is still very small compared to the total amount of negative equity among these banks’ homeowners.
  • In an effort to beef up the enforcement side of the settlement, an independent Monitor has been named who will have what at least sounds like significant powers to enforce a detailed set of new mortgage servicing standards. Penalties for violations will be up to $1 million per violation, and up to $5 million for some repeat violations.
  • The mortgage servicers will receive credit for different efforts they make to help their homeowners. The banks will get credit for mortgage write-downs, but also partial credit for write-downs by investors on mortgages that the banks do not own but merely service, as well as for helpful actions banks are already taking like approving short-sales. The compromise was to provide as much benefit as possible to homeowners while giving banks some flexibility in earning credit for their efforts.

The effectiveness of this settlement will depend on how strongly the written agreement is drafted. I’ll provide practical information about this written agreement just as soon as it is filed at court, so please check back here again.

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Will You Benefit from the Just-Completed $26 Billion Home Mortgage and Foreclosure Settlement?

The long-awaited joint federal-state settlement with the major banks for their alleged fraudulent documentation and processing of mortgages and foreclosures was announced on Thursday, February 9. Will it help you, and if so, how?

I interrupt my ongoing series on small business bankruptcy to answer your most immediate questions about this huge settlement.

1. Who is included in this settlement?

  • Only five big banks are currently signed on: Bank of America, Wells Fargo, J.P. Morgan Chase, Ally Financial and Citigroup.  Only mortgages owned and held by them are directly affected.  Negotiations continue with nine other mortgage servicers, which if successful could bring the total amount of money involved to $30 billion.
  • 49 states joined in the settlement; only Oklahoma did not.
  • Mortgages held by Fannie Mae and Freddie Mac—consisting of the majority of U.S. mortgages—are NOT covered.

2. What does this settlement resolve and what is open for further negotiation and litigation? In other words, what liabilities are the banks escaping from for their $26 billion?

  • The claims against the banks that are released in this settlement are limited to mortgage servicing and foreclosure claims. Claims for a variety of other alleged wrongdoing are not covered and so remain open to being pursued by the federal and state regulators, investors, and homeowners. Claims that are NOT covered include those related to the securitization of mortgage-backed securities that were at the heart of the financial crisis, and those against or involving MERS (Mortgage Electronic Registration Systems).
  • Individuals’ rights to bring their own lawsuits or to be part of a class action against any banks for any claims are not affected by this settlement.
  • The settlement does not limit any potential criminal liability for any individuals or financial institutions; it provides no immunity from prosecution whatsoever.

3. How does the settlement help you if your mortgage is held by one of these five banks?

  • If you need a mortgage loan modification, these servicers will (finally!) be required to offer principal reductions, for first and second mortgages, to a value of up to $17 billion. This is where the bulk of the settlement funds are earmarked.
  • If you’re current on your mortgage but your home is worth less than the mortgage, $3 billion of the settlement is to provide refinancing relief.
  • If your home has already been foreclosed, $1.5 billion will be paid out by the banks as a penalty against them–around  $2,000 per homeowner–without you needing to show any damages or releasing any claims against the bank.

4. Where do you go for more information and to find out whether you will be helped in any of these ways?

  • Go to the new settlement website for current and upcoming information about it:

http://www.nationalmortgagesettlement.com

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Massive Mortgage Settlement Finally Coming Together

The multibillion-dollar deal, more than a year in negotiations between the biggest home mortgage servicers on one side and the states’ attorneys general and federal agencies on the other, may be just days from being finished. The deadline for each state’s attorney general to decide whether to sign was Friday, February 3, but that has now been extended to Monday, February 6.

This settlement is to resolve allegations about an extensive series of foreclosure and mortgage loan-servicing abuses that came to light in the summer and fall of 2010. State and federal officials have since then been negotiating an agreement with five major mortgage servicers. It would provide some very specific mortgage relief to homeowners and would establish strict requirements for how banks could conduct foreclosures. The negotiations have gone back and forth, with various proposals being floated, resulting in very public displays of protest by various bank-friendly sets of attorneys general on one hand and by other more aggressive attorneys general on the other. A settlement now looks imminent, in large part because of the timing of the current election cycle, as well as the dire need for progress on the never-ending home foreclosure front —and because this has dragged on for so long.

Since this story is evolving every day, I’m going to provide you with a few recent news articles about it, introducing each one to help you decide if you want to look at it.

This USA Today article gets right to what we all care about, “Who benefits from possible $25B mortgage settlement?”  It’s actually a good summary—in a Q&A format—of the likely terms of the settlement and its effects on homeowners and the housing market. Some of the questions include: “How might the $25B be spent?” “Who will get [mortgage] principal reductions?” “How tough are the potential settlement terms on the banks?

“Mortgage deal would give states enforcement clout” from Reuters addresses the concern “that banks have not adequately followed through on prior settlements, a concern that has pushed government negotiators to establish more forceful enforcement mechanisms in this deal than have been used in the past.” So this deal gives the states, along with a separate “monitoring committee,” the power to go to court to enforce the terms of the settlement and to ask for penalties of up to $5 million per violation.

And if you want to get a taste of how complicated these negotiations have been on the technical side (without even accounting for the intense political pressures), here is a letter dated January 27, 2012 from the Nevada Attorney General to the officials who have been spearheading the settlement. In the letter, she asks for written answers to 38 questions so that her state can decide whether or not to sign on to the settlement. It’ll make your head spin. Don’t say I didn’t warn you.

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Foreclosure Rates Highest for Higher-Income Borrowers in Former Boom-Market States

In most parts of the country, foreclosure rates have been highest for low-income borrowers, and lowest for higher-income borrowers. But the exact opposite is true in “boom-market metropolitan areas located in California, Nevada and Arizona.

This is one of the most surprising finding of a report released a couple of weeks ago by the Center for Responsible Lending (CRL) called Lost Ground, 2011: Disparities in Mortgage Lending and Foreclosures. In my last blog I wrote about this report, focusing on its main headline story that 5 years into the foreclosure disaster, we’re not even halfway through it. But this conclusion that higher income homeowners are more prone to foreclosure in certain parts of the country is a real eye-opener.

This very thorough study of mortgages divided the borrowers into four categories:

Low-income: at 50% or lower than the area median income

Moderate income: at 50-80% of the area median income

Middle-income: at 80-120% of the area median income

Higher-income: at more than 120% of the area median income

Regional housing markets were also divided into four categories, based on appreciation in home prices between 2000 and 2005:

Weak-Market States:  Indiana, Iowa, Kansas, Kentucky, Michigan, Mississippi, Nebraska, North Carolina, Ohio, Oklahoma, Tennessee, Texas

Stable-Market States: Alabama, Arkansas, Colorado, Georgia, Illinois, Louisiana, Missouri, North Dakota, South Carolina, South Dakota, Utah, West Virginia, Wisconsin

Moderate-Market States: Alaska, Connecticut, Idaho, Maine, Minnesota, Montana, New Mexico, New York, Oregon, Pennsylvania, Vermont, Washington, Wyoming

Boom-Market States: Arizona, California, Delaware, Distr. of Columbia, Florida, Hawaii, Maryland, Massachusetts, Nevada, New Hampshire, New Jersey, Rhode Island, Virginia

For the weak-, stable-, and moderate-market states, the rates of foreclosure were highest among low-income borrowers, lower among moderate-income borrowers, lower still among middle-income borrowers, and the lowest among higher-income borrowers. But in the boom-market states, the foreclosure rates are completely opposite: highest among higher-income borrowers, lower among middle-income borrowers, lower still among moderate-income borrowers, and the lowest among low-income borrowers.

While it seems intuitive that the lower income borrowers would be less able to weather the storms of a harsh recession, why are the results topsy-turvy in the boom-market states?

Start by remembering that by the report’s definition most “higher-income borrowers” were not that wealthy:

While these borrowers may have had higher incomes (with a median of $61,000 for middle-income borrowers and $108,000 for higher-income borrowers), the extremely high cost of housing in these boom markets, even for modest homes suggests that the majority of these borrowers were not the very wealthy buying mansions, but rather working families aspiring to homeownership and the middle class.

But then the report made a fascinating discovery in looking at the incidence of high-risk features within mortgages, such as hybrid or option ARMs, prepayment penalties, or higher interest rates:

While in weak market areas, low-income and moderate-income families have the highest incidence of mortgages with at least one high-risk feature, the pattern is reversed in boom markets.

I suspect that because housing was so expensive in these boom-markets, even home purchases made by those in the higher-income categories used higher risk mortgages because a) they needed to stretch their housing dollar to afford what they were buying, b) property values were climbing so fast that everybody figured they could refinance later into a better loan, and c) sales were happening so quickly that the entire process got sloppy.

The end result is that mortgages with “high-risk factors” are resulting in more foreclosures, even if they belong to higher-income borrowers. There could be many explanations for this–for example, homes in those regions’ may be deeper “underwater,” or the unemployment rate may be higher there, either of which could push up the foreclosure rate. But overall the results seems to imply that a borrower’s good payment history is better predicted from the existence or absence of “high-risk factors” in the mortgage than from the borrower’s amount of income.

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“Not Even Halfway through the Foreclosure Crisis”?!

Going on five years into our foreclosure disaster, a major report is now authoritatively giving us that sobering news.

The Center for Responsible Lending (CRL) is a respected non-partisan research and policy organization with the mission of “protecting homeownership and family wealth by working to eliminate abusive financial practices.” In mid-November it released the results of its comprehensive analysis of foreclosures called Lost Ground, 2011: Disparities in Mortgage Lending and Foreclosures. This study reviewed and tabulated 27 million mortgages originated from 2004 and 2008, and looked at the borrowers’ performance on those loans through last February. As its title signals, the study addresses at how different socio-economic groups, different parts of the country, and different racial groups have been affected by the flood of foreclosures. Its findings contain a number of meaningful surprises, which I’ll tell you about some other time. But its first finding—that we’re not even halfway through these foreclosures—is what most caught my attention.

The analysis shows that of all mortgages entered into from 2004 through 2008, at least 2.7 million of them have been gone all the way through to completed foreclosure. This is about 6.4 percent of all mortgages entered into during that period of time. And this 2.7 million does not include foreclosures that have occurred in these last few years on earlier mortgages, those entered into before 2004.

Of this same set of 2004-2008 mortgages, another 3.6 million households are “at immediate, serious risk of losing their homes.” The study defined this category as those mortgages already in the midst of the foreclosure process, or more than 60 days delinquent. Not all of these will result in completed foreclosures, but a large percentage likely will.

So, about 2.7 million foreclosed, 3.6 million to go.

It’s important to realize that this 3.6 million in seriously troubled mortgages does NOT include other troubled mortgages which originated outside the 2004-2008 period, nor those which are performing decently now but will nevertheless go to foreclosure in the near future because of new unemployment, etc. So it is very likely that there will be more than that 3.6 million number.

 

I realize that for many people, this constant talk about foreclosures gets tiring, frustrating, even maddening.  Unless you are dealing with a foreclosure yourself, or are close to someone who is, it’s one of those things that’s in the news so much, year after year, that the stories start sounding the same so you start tuning it out.

But I can’t tune it out. I don’t want to tune it out. Much of my job is to listen attentively to those stories, told to me virtually every day by hard-working men and women who are fighting to save their family home, their place of shelter and stability and dignity. Behind every single foreclosure, and every threatened foreclosure, there is a very human story. Some of the stories are rather straightforward, but most are messy. Human beings being who we are, our lives don’t tend to travel down a neat and tidy path. My job is to take your financial story, lay out your options, and help you chose among them to get to the best place you can get to. Including with your home.

The country is nowhere close to working through its foreclosure epidemic. But let me help you get through your own personal part of it.

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The Simplest Save-Your-Business Chapter 13 Case

Here’s how to focus on running your business, by stopping your creditors from taking the wind out of your sails.

In the last few blogs I’ve been talking about some of the extra considerations that come into play when you own a business, are having financial troubles, and wonder if bankruptcy can help. No question—most of the time, having a business adds an extra layer of issues for me to help you work through in deciding whether bankruptcy is the best option, and then putting your case together if it is. But a business Chapter 13 case does not have to be complicated. Let’s take a very simple business situation, and walk it through a Chapter 13 case, to get a practical feel for how it works.

So let’s say Mark, a single 30-year old, started a handyman business when he lost his job three years ago. Before that he’d done about ten years of all kinds of construction and maintenance work, already owned all the tools he needed, and had even taken a few courses at the local community college in small business management because he’d always wanted to run his own business. He had good credit at the time, owed nothing but about $3,000 on some credit cards, plus had never been late on his modest mortgage. Mark had lived all his life in the same city, was the kind of guy who knew tons of people, and had well-earned reputation that he could fix anything. He put a lot of time into putting together a detailed and realistic business plan. He knew he should have some money saved up to get him past the start-up phase, but then the recession hit, he was out of work, and decided it was now or never. Besides, he had $7,000 of credit available on his credit cards if he got desperate.

His business started off slowly, partly because he didn’t have any money for advertizing. But he was creative and worked very hard building a customer base and a good business reputation. His income was creeping steadily upwards, but way too slowly. Over the course of the first year Mark maxed out his credit cards, and simply didn’t have enough money to pay income taxes to the IRS, falling behind $7,000 to them. Then during the second year he managed to service the credit card debt but couldn’t pay it down any, and fell behind another $7,000 to Uncle Sam. Then this last year, the IRS forced him to start making $500 monthly payments on his $14,000 debt, plus the estimated payments for the current year so that he didn’t continue falling further behind with them. As a result he’d gotten spotty on his credit card payments, which jacked up the interest rates and pushed him over the credit limits, piling on all kinds of fees. And now he’s missed a total of 4 payments on his mortgage, putting him $6,000 in arrears.

In the midst of all this his business now has steady—and still slowly increasing—income, Mark enjoys his work in spite of all the financial pressures, and believes he can keep growing it, especially if/when the economy improves. But the IRS has him in a vice, the credit cards creditors are sending their accounts to collection agencies, and his home is heading sooner or later to foreclosure.

A Chapter 13 case filed now for Mark would:

  • Stop the pressure by the IRS on the $14,000 debt, by cancelling the $500 payments, and giving him much longer—3-to-5 years—to pay that debt, usually with NO additional ongoing interest or “failure to pay” penalties, thus reducing the total amount to be paid to the IRS.
  • Stop collection efforts by the credit card creditors and collection agencies, who would only receive money AFTER he caught up on the house arrearage AND paid off all the taxes, with the amount received depending on what Mark could afford and how much in assets he needed to protect.
  • Immediately and consistently protect all his business and personal assets—tools and supplies, his business truck and/or personal vehicle, receivables owed by customers for prior work, and his business and personal bank and/or credit union accounts.
  • Allow him to focus on his business instead of his creditors, giving that business much more of a chance at success.
  • Get him debt-free–at the end of the 3-to-5 years Chapter 13 Plan, his mortgage would be current, he would owe nothing more to Uncle Sam, and he would have paid as much as he could afford on the credit cards, with the rest written off.

And the business that he loves, and in which he invested so much hope and dedication, would be alive and well.

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Federal Law Protects Renters from Foreclosure

A temporary federal law gives renters some protections against getting evicted from their homes when a bank forecloses on their landlord. The “Protecting Tenants at Foreclosure Act” is short—only two pages—and simple: after the completion of a foreclosure of a home or apartment building, the new owners of the property must allow  renters to continue staying there for either 90 days or through the end of their lease, whichever is longer. So even with a month-to-month rental, the renter would be allowed to stay for 90 days after the foreclosure. Of course have to pay rent and fulfill their side of bargain while they remain on the property.

Why has this been a problem? The public focus during this long foreclosure crisis has been on the millions of homeowners losing their single family homes. But many of these homes are in fact rented out to others. And there are also many foreclosures of multiunit residences—everything from duplexes to apartment buildings. In fact research by the National Low Income Housing Coalition estimated that “renters represent as many as 40% of the American families who will lose their homes in this crisis.”

While homeowners have long had an established set of protections during the foreclosure process, renters have had virtually none. Renters often had no idea that their landlord had fallen behind on mortgage payments and that their home was being foreclosed.  They found out only after the foreclosure sale had occurred and the bank or the new owner shocked them with eviction papers. The “Protecting Tenants at Foreclosure Act” provides at least a modest cushion of time in almost all situations, and the right to the full term of their lease for tenants who bargained for such longer leases.

This straightforward law contains very few exceptions. It does not apply if the tenant is also the owner of the property being foreclosed, or the owner’s spouse, child, or parent. The rental agreement must be genuine, and must provide for payment of rent at about fair market value (or with a legitimate governmental subsidy). Also, if after the foreclosure the new owner intends to live in the home as his or her primary residence, then the tenant must surrender the property after 90 days even he or she has a longer term.

This law is temporary in that it was to expire at the end of 2012. Last year’s financial reform law has extended that expiration to the end of 2014.

Maybe the most important part of the “Protecting Tenants at Foreclosure Act” is that it sets a threshold standard, but also explicitly states that it shall not “affect the requirements… of any State or local law that provides longer time periods or other additional protections for tenants.” During these last two years many states have recognized the need for tenant protections. If you are a tenant in a house or apartment that you are afraid is being foreclosed upon, contact our office to set up a consultation to discuss this and any other financial concerns you may have.

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