When foreclosure doesn't mean eviction

Second, the repercussions of vacancy spread far:

• Homes are lost. Thieves hammer through walls for wiring, plumbing and appliances. Irreparably damaged, houses must be destroyed. Banks and insurance companies take the hit. (See "Foreclosure's filthy aftermath.")

• Crime festers. Empty buildings and lots draw vagrants and drugs. (See "Foreclosure nearby? It's your problem.")

• Social services are strained. Not everyone has somewhere to go, and shelters are already filling. Massachusetts alone -- hardly the worst off -- is facing 30,000 possible evictions.

• Neighbors lose spending power. Homes near foreclosed properties drop an average of $5,000 to $7,000 in value, according to various studies.

• Communities lose tax dollars. The cumulative depreciation in home values could result in a $202 billion loss in local taxes, according to the Center for Responsible Lending. (See "Why your property taxes are going up.")

• Equity, spending and home prices drop further. A downward economic cycle of unemployment and home foreclosures follows.

Banks not ready to be landlords

If it's a problem to make people leave, it can be more of a problem to let them stay as paying tenants.

"There are things happening that aren't in anyone's best interest but are happening because there aren't any alternatives," says Jeffrey Lubell, the executive director of the Center for Housing Policy, a national research organization.

If only it were as simple as paying rent to the bank.

But banks aren't set up to be property managers, and they would be responsible for expensive upkeep. Furthermore, the loans themselves are owned by a diffuse group of bondholders, thanks to the unregulated sale of mortgages into diversified securities. If a mortgage loan is isolated and sold at a loss (likely during a down market), investors could sue.

"Any judgment you make is going to gore somebody's ox in the stratified pool of bonds," says Alpert, the investment banker.

Selling the property -- the traditional route -- is unattractive in the depressed market, with those who control the loans staring at 50% losses. Nor will rents, which did not inflate as mortgages did, cover the price of the former loan.

"They're in a bubble-bursting hangover," says Perera, of the Miami Workers Center. "They need to sober up and accept the loss of the speculative value of the building."

Some sea changes are occurring. Under legal pressure, giant mortgage backer Fannie Mae announced Dec. 14 that it would begin negotiating leases with renters in foreclosed properties rather than pursue evictions. The change is expected to affect tens of thousands of tenants next year.

Freddie Mac, the other government-controlled mortgage giant, is looking at rolling out a similar program in January. It's also good for building upkeep, neighborhood home values and tenants' well-being, says Brad German, a Freddie Mac spokesman.

'Asking for the right to pay rent'

In an effort to avoid a tsunami of evictions, advocates are trying to force alternatives. Here are a few:

• Outlawing eviction. Massachusetts has introduced a Just Cause Eviction law, which would prohibit the ousting of good tenants when a building is foreclosed on. Other states are considering similar measures.

• Selling to community organizations. This is what Tyler is attempting, and it seems to have paid off. Codman Square Neighborhood Development has agreed to buy the four-family home from Fannie Mae, which accepted what it called a reduced price of $245,000 in order to help keep the tenants in place. The community association, which used state money dedicated to repossessing foreclosures, will rent or sell directly to the tenants, or form a limited equity co-op with them. The tenants, who only recently faced eviction notices, will not only stay but should see a rent decrease of close to $100 a month, says Mark Dinaburg, Codman's director of real-estate development.

• Leasing and reselling. Alpert, the banker, has devised a "Freedom Recovery Plan," in which owners could lease the foreclosed home for five years then opt to buy it back at market value. "The homeowner loses his house, but he wins his right to stay and the potential to buy back into it," Alpert says. The lender loses the right to turn it around but saves foreclosure costs, which have skyrocketed to 30% of the outstanding mortgage, on average. "So everybody wins, everybody loses," Alpert says. "As a whole, you will promote stability in the market faster."

• Keeping the water running. In California, Just Cause Oakland works with utilities to keep utilities flowing, allowing tenants to remain in the interim.

• Refusing to evict. Sheriffs in Illinois and Michigan made headlines when they simply stopped carrying out eviction orders on tenants. April Charney, a housing lawyer in Florida, said a police officer there asked her if he could refuse also. "They see the human misery firsthand," she says. "It's civil disobedience from within the system. That's kind of odd."

• Mounting court battles. In Boston, law school students throughout the city knock on doors of foreclosed properties, inform occupants they have a legal right to remain and offer to represent them in court. "Right now we're just bringing pressure to bear," says David Haller, a volunteer with the Harvard Legal Aid Bureau, which spearheaded the effort."The whole point is not to be litigious; the point is to open up the case for negotiation," Haller says. "As long as it's easy and cheap for them just to evict everybody, then there's not a lot of incentive to do anything other than evict people."

• Protesting. Boston's City Life/Vida Urbana organizes eviction blockades, in which upward of 70 citizens gather outside a property on eviction day. Groups in other cities plan to follow. Banks, facing regulation battles, typically withdraw in the face of bad publicity, community organizer Meacham says. In two unsuccessful blockades, protesters were arrested. "We're asking for the right to pay rent, and the banks are saying no. Or the right to buy the building at the real value, which is all the bank is going to get anyway," Meacham says. "If the banks were willing to do one of those two things, that would completely turn around the crisis in this city and in most cities."

And if you've been foreclosed on?

Housing law varies by state and region. In general, housing advocates advise renters of foreclosed properties to:

• Read any materials posted on your property, even those addressed to others. Contact a group that represents tenants for information on exactly what the notices mean.

• Don't automatically move. You will likely need legal help, so contact an attorney or a local legal aid office. You have the right to remain.

• Don't accept the bank's "cash for keys" offer, advocates say, unless it's enough to cover first and last months' rent, a security deposit and moving expenses. Often it's not.

• Get educated. Tips (like these from Nolo and these from the Eviction Defense Network) are available online.

Published Dec. 19, 2008

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