Advocates say low-income tenants living in multifamily properties that have been foreclosed on, such as this three-family house in Fitchburg, don’t have to move.
Despite a law that protects low-income tenants with rental subsidies, lenders who have foreclosed on properties still seek to evict them and refuse to accept rental payments.
A foreclosure prevention law passed in Massachusetts two months ago includes a provision that specifically protects tenants with federal and state rental vouchers who live in foreclosed properties.
Tenant advocates say lenders are ignoring the law, sending eviction notices and turning away rental assistance vouchers.
Rafael Mares, an attorney with the WilmerHale Legal Services Center of Harvard Law School, said the state law clarified that rental subsidy agreements survive with the same terms after a foreclosure. But that hasn’t stopped lenders from seeking evictions.
“The lenders haven’t changed their attitudes. They still send out the same notices as before,” said Mares.
Prior to the passage of the state law in November, case law protected tenants who had federal vouchers. The state law added renters with state vouchers and reinforced the federal protections already in place.
In some letters sent to tenants or agencies that administer the vouchers, lenders claim that they don’t want to continue rental subsidy contracts because of business or economic reasons. Some claim that they can’t market a property, or that the property will sell for less, if it’s occupied.
But tenant advocates question why lenders wouldn’t want a paying tenant that comes with a guaranteed monthly subsidy, especially in a market when home sales are slumping.
Real estate attorney Scott Lakin said lenders are hesitant to accept rental subsidies because they don’t want to deal with the liability issues associated with being a landlord in a pro-tenant state like Massachusetts. Lenders won’t know if a tenant provided a security deposit, which must be returned to a tenant who is moving out, and they’ll have to ensure that the property meets local sanitary and building code standards.
“They won’t take rent from the tenant because if they take the rent, then they’re acknowledging they’re the landlord,” said Lakin, an attorney with Cossingham Law Office in North Andover.
“The national lenders don’t want to deal with the intricacies of the landlord-tenant law here because once they do, they become liable as a landlord,” he added.
Lakin also noted that marketing a multifamily property with tenants is also difficult, because the lender and the prospective buyer don’t know the tenants’ rental payment histories. Potential buyers could have trouble securing financing to purchase a property if they’re relying on the rental income stream but don’t have historical information about the tenants.
“I’ve never represented a lender in a foreclosure and gone to evict people, but I can see if I were representing a lender that this is what I’d be worried about,” said Lakin, who represents lenders, buyers and sellers.
Still, Lakin said that the new state law essentially forces lenders that foreclose on properties with rental subsidy-holding tenants into being landlords.
“They don’t have a choice,” he said of the lenders.
‘Never Notified’
Foreclosure activity has surged in Massachusetts, according to statistics from The Warren Group, parent company of Banker & Tradesman. Lenders filed 24,155 foreclosure petitions in Massachusetts Land Court through October 2007, a 63 percent increase from the 14,847 petitions filed during the same 10 months in 2006. Foreclosure petitions are the first step in the foreclosure process. About 22 percent of the petitions filed through October of last year, or 5,254, involved two- and three-family homes.
The Metropolitan Boston Housing Partnership and the Boston Housing Authority, which administer rental vouchers, have been tracking foreclosure auction notices to see how many tenants with subsidies are living in properties on the brink of foreclosure.
MBHP, which administers 5,191 in state and federal vouchers in Suffolk County, tracked notices from June to December of last year. The agency found that 12 percent of the properties that were about to be auctioned had at least one tenant with a voucher administered by MBHP. In Dorchester, nearly 60 percent of the auction notices during those six months matched a property that included an MBHP tenant.
The agency started sending letters to tenants in the fall, notifying them that they have rights and can seek legal help. Landlords also have been notified that rental payments will cease.
Jim Bianchi, MBHP’s program specialist, said the agency rarely is informed that a foreclosure has taken place.
“In many instances, we’re never notified. But we do occasionally get a letter from a law firm saying they’re representing a mortgage company or bank,” he said.
The letters usually request that the rental assistance payments not be transferred to the lender, he said.
The majority of tenants who receive some type of letter from a mortgage company or a Realtor or lawyer representing the company, usually vacate the property, according to Chris Norris, executive director of MBHP.
“The damage is being done when the letter is going out regardless of whether [the lenders] have a legal leg to stand on,” Norris said.
Tenant advocates say renters often are offered a few hundred dollars to move out within a short timeframe. If tenants accept the payment, the lenders usually require them to waive all their claims and move out.
Mares said housing groups have been trying to spread the word that renters can stay put and should not accept cash payments from lenders or their representatives.
“Lots of tenants believe Â… that they have no choice and it’s better to leave with $500, $1,000 or $5,000 then to leave with nothing,” said Mares.
Like MBHP, the Boston Housing Authority is reaching out to tenants.
Lydia Agro, BHA’s spokeswoman, said the agency sent letters to all its Section 8 voucher holders in late November informing them they have rights if they’re living in a foreclosed property. The authority administers roughly 11,000 Section 8 vouchers, which help tenants to pay a portion of their rent.
Around the same time BHA sent the letters, it began tracking foreclosure notices and has started mailing letters to tenants living in properties that were about to be foreclosed.
“Please be advised that a tenant is generally not required to give up his or her apartment because the landlord has lost the building due to foreclosure. Banks, lenders or new landlords may not evict occupants without first going through court and winning a case. Therefore, you will not be required to move simply because an agent from the bank or some other party tells you that you must leave because the property is facing foreclosure,” the letter states.
The letter also refers tenants to WilmerHale Legal Services Center.
Mares said the center is representing about 30 low-income tenants in Boston. Once the center gets involved, lenders have allowed tenants who have been threatened with eviction, particularly those with Section 8 vouchers, to remain, according to Mares.
