Renters of forelcosed homes may not have to move...Fannie Mae Loans

 We agents have had this dilemma at different times in our careers. This is about the 3rd cycle like what we are facing that I can remember. Sure things are a lot worse all over, but many will remember the Resolution Trust Company the government had to set up to take over banks and sell homes- assets.

The problem many face are what to do with an tenant in a rental. Santa Cruz California has rental laws locally and statewide that offer protections for renters. It is murky waters when a tenant gets served a notice that the house is being foreclosed on. The tenants are innocents in this situation. The pay their money on time ( hopefully) and have in exchange from the landlord (hopefully) a safe and suitable place to call home.

So what does one do and how should a tenant proceed? The answer varies by state and situation. If the seller has essentially gone into foreclosure, the tenant may be paying their rent and in exchange have a place to live. What the landlord does with the money is really of no consequence, short of the fact that he or she may be breaching their agreement with the tenant. Does the tenant have a lease or a a 30-day month to month rental ? Either one, basically gives one little to hang their hat on, once the landlord has been foreclosed on. To see a notice of the time line that a Santa Cruz bank foreclosure goes though follow the link.

Recently Fannie Mae has taken steps to alleviate this problem, by letting renters remain in their homes, while the landlord is in the forelcosure process. One of the things done as part of the eviction process, is to evict the tenants or owners to gain posession of the property.

The new policy change is expected to affect about 4000 properties. The tenants will sign leases with Fannie Mae, while the property is marketed. This will be a beneficial event as it does not put more strain on the rental properrties on the market. During times like these the event is tramautic enough without having to move unexpectedly, tear up neighborhood relationships and potentially pay more for having such short term notice.

Freddie Mac is said to be working on a similar policy, but that has notyet come to fruition.

The benefits of having income while a property is on the market is sensible and makes economic sense in several ways. First while they lost the mortgage income, they at least have some rental income. Secondly, the chance of vandalism and the need for "winterizing," is minimized. Thirdly, the tenant now knows they potentially can be a buyer, whereas that was not likely an option before.

I applaud this common sense approach. A mad tenant or landlord often destroys the property or does not leave it on pristine condition, whereas this keeps the neighborhood intact, and allows for a more orderly transition of the property.

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