First, the U.S. housing bubble burst in 2006 when median home prices began to decline. Next, the U.S. slipped into a national recession as unemployment soared, investments plummeted, and overall economic activity decreased considerably. Over time, (or suddenly, depending on whom you ask) many homeowners found that they owed far more for their home than the home was worth. These “underwater” property owners found themselves struggling to make the mortgage payments on the home due to adjusting interest rates, balloon payments, and other undesirable consequences resulting from the credit crisis. Stress, frustration, and desolation have resulted in many homeowners voluntarily walking away from the property or being forced out involuntarily due to foreclosure.
These homes may be investment properties of the homeowner, as prior to the “housing bust” interest rates were low and seemingly little more than a signature was required to purchase property. The homeowner was able to purchase additional homes while holding onto the old home. In most instances the former home was rented out and, thus, the homeowner/tenant relationship was created. However, in situations where the homeowner is facing foreclosure, the tenant is also at risk. Prior to 2009, many renters found themselves “out on the street” as a result of the property, in which they called their home, being foreclosed upon. The homeowner couldn’t make the mortgage payments so the bank took the house and evicted the renter. Keep in mind that various states have foreclosure laws, so I’m talking in general terms. In response to these “spontaneous evictions” Congress passed laws in 2009 to provide certain protections to tenants of foreclosed properties. The Protecting Tenants at Foreclosure Act of 2009 (as amended), generally mandates that the purchaser of a foreclosed property provide the tenant with at least 90 days’ notice prior to eviction and allow the tenant to remain in the home until the end of the lease. The latter wouldn’t apply if the purchaser plans to make it his/her primary residence, in which case, the new owner must still provide the 90 days’ notice of eviction.
Switching gears a bit, I would be remiss if I did not note the correlation between the homeowner landlord (landlord) and the tenant. All landlords hope for that “perfect” tenant. Simply put, one who pays his/her rent on time every month. As a landlord myself, I often trade “worst tenant” stories with other landlords I know. Stories of bounced checks, property damage, and seemingly endless court hearings are discussed at length. It seems like regardless of how many glowing recommendations, background checks, and the like, hopes become quickly dashed and the landlord/tenant relationship becomes a tumultuous one. I struggle to understand why.
Is it because, as a tenant, paying late generally has no consequences? As a homeowner, if you pay the mortgage late (e.g. 30 days or more), your credit history will likely be negatively impacted. As a tenant paying late, you may get hit with a demand for payment letter or a late fee, but really, there does not appear to be any strong incentive for the tenant to pay according to the terms of the signed lease agreement. It seems like folks were more inclined to keep their word via handshakes or “gentleman’s agreements” back-in-the-day, than now with binding legal documents.
Now don’t get me wrong, I know there are many folks who pay their rent on time each month. And I know that there are a lot of landlords with a “slum” mentality. All they see are $$ and they don’t live up to their legal obligation of providing safe and decent housing. It is a two-edged sword in some aspects but I have never seen a clause which gives the tenant the right to withhold payment due to inaction of the landlord. In this regard, the landlord seemingly has the upper hand. The rent generally must be paid no matter what. Sometimes the late or missed payments are the reason, or at least a huge contributing factor, in the landlord not being able to pay the mortgage, thereby starting the foreclosure cycle. In a landlord/tenant situation, it is in all parties’ best interest, but perhaps even more so for the tenant, that the rent be paid in full and on time.
The tenant is often the last to know what is happening and even with 90 days’ notice of pending eviction, it may take longer than that to find a suitable alternative place to live. Further, if the tenant has not been paying the rent, then he/she can forget about receiving a favorable recommendation from the landlord, thereby making it even more difficult to obtain housing elsewhere. We all must strive to live up to our financial obligations and teach our children the importance of doing what you say, whether it’s “said” in spoken words or words on a page. Your rent or mortgage payment should be of the highest priority and one of the first bills to be paid each month. I mean, what’s the point of paying the cable bill if you don’t have a home to watch it in..