It was Sen. Charles Schumer (D-N.Y.) to broach the topic, proposing a plan that would allow struggling homeowners on the verge of losing their homes the option to rent the property at “a fair-market rate.”

“This wouldn’t cost taxpayers any money,” Schumer said. “[It] wouldn’t bail out the lenders. Homeowners would be able to say in their home even after defaulting on the mortgage, but they no longer own the home so there’s little temptation to take advantage of this program unless all efforts at reworking the mortgage had failed … A year or two later, maybe the value goes back up and you don’t even need to foreclose on it.”

For the banks, Schumer added, it’s a good deal as well. They wouldn’t have to go through the hassles associated with maintaining an empty house. And the rent, though less than the prior mortgage payment, would be better than nothing. “[Accepting] a fair rent will be less expensive to the bank than foreclosing,” Schumer said.

White House officials appeared receptive. Herbert Allison, the Treasury Department’s assistant secretary for financial stability, said “it’s certainly an idea that we’re thinking about.”

William Apgar, senior mortgage advisor for the Department of Housing and Urban Development, warned of one obstacle: Some homeowners, he said, are surprisingly unwilling to rent the house they just defaulted on. Still, Apgar conceded that, “If you could figure out a fair rent, it seems like it would be a fair deal.”

Schumer had an easy response to that. “It doesn’t seem to me to be too hard,” he said, “to figure out a fair rent.”

iStockphoto

While the plight of homeowners affected by the real estate meltdown has been well-documented, renters too often fall under the radar. Although tenants’ advocacy groups credit recently passed national legislation for including some protections, they charge that the new law only scratches the surface.

The number of renters being forced from their homes is on the rise as foreclosures increase. “We’ve seen a mass increase. I would say it’s up by 50 percent,” said Arlene Bradley, housing advocacy director of Housing Rights Inc. in Berkeley, Calif., a group that provides legal advice and counseling to renters in the greater San Francisco Bay area.

Illustration by: Matt Mahurin

Prior to the new legislation that went into effect last month, tenants were at the mercy of the lender, and the results could be very disruptive. Renters could be forced from their homes with a mere five days’ notice in the state of Arizona, said William Deegan, executive director of the Phoenix-based American Tenants Association.

Under the new rule, which was passed May 20 and took effect immediately, an addendum to a broader housing bill addressing the foreclosure crisis, a lender who takes possession of a property or a new owner who buys the building at auction has to let a tenant stay for 90 days or until their lease is up. The rules are a bit different if someone is buying the property to live in; in that case, they can terminate a lease with 90 days’ notice. “This guarantees 90 days,” said Ed Josephson, director of litigation for South Brooklyn Legal Services in New York. “Before the law they could throw you out in the middle of your lease.”

While those who work with renters across the country say the legislation is a vast improvement over the earlier status quo, they also call the law incomplete. Too often, renters are at the mercy of courts and a financial system ill-equipped to deal with their particular challenges. For one thing, a tenant is still more likely than not to lose his or her security deposit if the owner goes into foreclosure

“The problem is the bank isn’t interested in dealing with you and the old owner is long gone,” said Janet Portland, lawyer and author of Every Tenant’s Legal Guide. While a tenant can take a landlord to small claims court, if they’ve declared bankruptcy — which is common — the renter is probably out of luck when it comes to collecting on a judgment.

The ATA’s William Deegan said this is particularly troubling because renters are more likely to need that deposit when they go looking for a new place to live. “Tenants tend to be poor, young families, the elderly. They fall through the cracks.” Deegan wants a law that would order property owners to put security deposits in escrow and not co-mingle them in an account that can be bled dry.

Another issue is that of property maintenance; too often, renter advocates say, owners let cleanliness and even safety standards lapse, and the banks who tend to inherit the properties aren’t usually equipped to deal with these pressing needs. “Properties often go unmaintained,” said Arlene Bradley of Housing Rights Inc. “That’s an area that’s largely being left to state and local governments to deal with regarding local code enforcement. That’s a big gap right now.”

“If you feel the place is getting shabby but not unsafe, you’re pretty much stuck,” said Portland. While there is currently no requirement at the federal level for banks that take on foreclosed residential buildings to hire property managers, some say this is a necessary next step, especially because the number of large, corporate-owned apartment buildings in foreclosure is expected to rise as the commercial real estate market worsens.

Right now, most of the people uprooted by foreclosure are in duplexes, triplexes or other small-scale lodgings. Often, the home that is foreclosed on is the landlord’s place of residence, too. If larger properties start to fall, this means that potentially hundreds or even thousands of renters could be living in places that are owned by a bank or speculator who picked up the property for a rock-bottom price at an auction.

“This is the beginning of a wave,” said Ed Josephson of South Brooklyn Legal Services. In big cities like New York, many owners bought buildings when prices were at their peak and now can’t make their payments due to falling rents and can’t refinance because no credit is available. “You have a whole parallel world of multi-family crisis,” he said.

Legislating additional tenant protections is a tightrope walk, though. Although the 90-days’ notice provision passed through Congress successfully, other efforts have been challenged. Last month, Rep. Nydia Velázquez (D-N.Y.) added an amendment to a housing crisis bill that would have let the government step in, take over troubled apartment buildings and convert them to affordable housing. This move drew fire from the National Multi Housing Council, a trade group representing apartment building owners and developers.

Giving government the power to seize ownership of properties would choke off what little funding there is trickling into the market, charges Jim Arbury, senior vice president of the National Multi Housing Council. “There were no specifics regarding what would constitute overleveraging of a property,” he said, which would make lenders and developers reluctant to invest.

But there are 95 million renters in America, said Deegan, and they need more legal protection than the corporations that actually own their places of residence. “When you look at this whole economic turmoil, everyone’s jumping through hoops to help homeowners and nobody’s dong anything for tenants,” he said.

Dart’s point is that most people don’t ever see or understand how painful evictions can be. Here’s his moving description:

Until you’re physically out there, you can’t really get the magnitude of what you’re actually up to. It sounds like it’s an antiseptic process, and it’s anything but that. In the majority of the homes I was going into, there were always little kids around—I mean, really young kids, and we’re taking them and putting them out on the street. A lot of them were seniors, and a lot of them had issues with dementia. Once again—we’re taking them out to the street … Most of these neighborhoods are not good neighborhoods. Once [their belongings are] out on the street, we leave. While they’re off looking for transportation, the few things they own are being stolen.

I tried to work arrangements with landlords and mortgage holders to get me more information as far as who was in there, so I could try to get social services to them and somewhat mitigate this. And I had no luck.

Dart also said the whole situation was made worse because banks sometimes provided incorrect information on evictions, once leading his deputies to a vacant lot, where the house in question had burned down two years earlier. Or deputies find the wrong occupants inside. The amount of mistakes became so great Dart grew convinced the entire system was flawed. And he was tired of seeing the effect it had on the innocent. From Dart:

One in particular hit all the buttons. We went in, and standing in front of me is a young man, probably early 30s; he’s holding two 6-month-olds in his hands, in their diapers, both of them have colds; he’s got a 5-year-old, and an 11-year-old with his wife. And we’re there to throw him out.

He pulls out a lease he’d signed, which was all valid and notarized. The lease was entered into after the foreclosure had occurred—the case had gone through the courts, but this landlord was such a rotten person he kept renting the place out. If not for the steps we’d put in place, this guy was out in the street with these little kids.

Dart’s descriptions remind me of something housing expert Alan Mallach told TWI last week – that on Wall Street and in Washington, the mortgage crisis is not about people’s lives and neighborhoods. It’s just about the paper. And Dart reminds us that even well-intentioned policies like the ban on evicting renters take time to translate into reality. Same with loan restructurings. In the meantime, foreclosures grind on. For another, personal look at evictions, here’s what TWI found in December, when a ban on holiday foreclosures supposedly was in place.