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Tenants of Foreclosed Homes often Unsure of Options

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By Rick Radin

RISMEDIA, August 14, 2010—(MCT)—Erin Kennedy-Florez was 10 months into a one-year lease on a home in Richmond, Calif., when she found a notice on her door saying the home was being foreclosed.

She said she called her landlord, who told her that he was trying to refinance the house and to keep paying him rent. “I was paying the rent, but he was not paying the mortgage,” Kennedy-Florez said.

Soon after, the house went into foreclosure, and Kennedy-Florez immediately heard from a law firm representing Freddie Mac, the federal real estate lending agency that held the note on the home. “I had to decide whether I still wanted to be living there while they were showing it to potential buyers,” she said.

Kennedy-Florez’s situation reflects a problem that tenants rights’ groups say has been flying under the radar since the home foreclosure crisis began in 2008.

They say thousands of renters have lost security deposits, paid rent to former landlords who no longer owned the house, and agreed to move on short notice because they didn’t know their rights.

Kennedy-Florez accepted a cash settlement to move three weeks after the foreclosure in November 2009. She received the check the day she moved out but struggled to come up with the security deposit for a new rental in El Cerrito, Calif.

The landlord still owed her a $3,200 security deposit and has been paying it back in $100 and $200 installments, she said.

“I jumped at the first place I could find,” she said. “I’m hoping this place isn’t shaky, too.”

Kennedy-Florez’s former landlord said the home had been foreclosed but that he had paid back the security deposit in full.

Some foreclosure situations have probably been resolved to the satisfaction of landlords and renters alike, said Gabe Treves, program coordinator with rights group Tenants Together, which is based in San Francisco.

But Treves said his agency has helped 3,000 renters squeezed between landlords who are behind on their mortgage payments and lenders trying to recover their investments.

“The vast majority of the tenants we talk to are having their rights violated,” Treves said. “Banks are being very aggressive in trying to get the tenants out, because they are stuck on the idea that if tenants vacate the home they can sell it.”

Wells Fargo Bank is committed to following all rules that protect tenants who are living in foreclosures, spokesman Jason Menke said. At the same time, Wells Fargo is in the business of lending money for home purchases, not in managing rentals, he said. “Generally, it’s our object to get a new owner into the house as quickly as possible,” Menke said. “It’s in our best interest and that of the community to return properties to the market.”

California Attorney General Jerry Brown launched an investigation into the issue last month, partly in response to the Tenants Together report.

Brown sent a letter in June to California banks, lenders, investors and law firms asking them to explain their procedures for dealing with tenants in foreclosed properties in an effort to find out whether laws are being broken.

Tenants are protected by a 2009 federal law that allows them to stay in their units for 90 days after a foreclosure notice is posted, but they have other rights as well:

-Renters can insist on staying in their units until the end of their leases, except when the new owner of a single-family home wants to move in.
-They can require banks and their agents to put all communication in writing.
-They are not required to take cash incentives to move out before the law requires.
-Harassment, such as changing locks without a court order, entering the home without permission or shutting off utilities, is illegal.

In addition, 16 cities in California, including Oakland, Richmond, Berkeley and Hayward, have just-cause eviction ordinances that rule out foreclosure as grounds for an eviction. Tenants have the right to continue renting the home indefinitely absent any other grounds for eviction unless the new owner wants to move in.

Wells Fargo sends tenants a letter outlining their legal options if it forecloses on the house where they live, Menke said. The bank often offers cash incentives for tenants to move out before the three-month period has passed.

The bank also honors lease agreements as long as the tenant has a copy of the lease. But if the bank sells the house, tenants have 90 days from the sale to move, said Wells Fargo spokeswoman Mary Berg.

“If the new owner wants to move in, then the tenant is no longer protected unless the new buyer decides to keep the renters there,” Berg said.

Lynne Codde and her daughter Shelby were renting an Antioch, Calif., home that was sold at auction. The new owner, a property management company, offered them $500 to move out immediately, she said. “We just kind of laughed at them and went online and found out what our rights were,” Codde said.

She said representatives of the company started showing up twice a week to ask them about their plans to move. One day a woman showed up who claimed that she had rented the house from the new owners.

“Three or four weeks in, they called and asked us how much it would take to get us out,” she said.

The property company eventually agreed to pay them $4,000, which they used to put down a security deposit and first month’s rent on a house in Fremont, Calif.

(c) 2010, Contra Costa Times (Walnut Creek, Calif.).

Distributed by McClatchy-Tribune Information Services.

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