Is Fannie Mae the United States’ Landlord?
Homeowners aren’t the only people affected by the foreclosure crisis. Increasingly, renters who have dutifully paid their rent are being evicted from their apartments because their landlords face foreclosure. In fact, over the last several months, as many as 70,000 renters have confronted foreclosure-related eviction.
Recently, government-run mortgage finance company Fannie Mae promised to assist tenants by signing new leases with those living in Fannie-owned properties that have been foreclosed. Under the proposed plan, renters will be granted the option to lease month-to-month on foreclosed properties until the property is resold. Fannie’s actions mark the first nationwide attempt to save renters caught in the mortgage crises.
While it’s a little disconcerting to see Fannie effectively become our national landlord, the mortgage behemoth’s actions may encourage private lenders to enact such programs; further, lawmakers may be persuaded into enacting more comprehensive relief measures.
Still, there are potential problems with Fannie’s plan. First, because the government lacks incentive to maintain rents at market rate, taxpayers may ultimately subsidize below-market rentals. Second, government may waste taxpayer dollars because it lacks the necessary experience and/or infrastructure to manage these rental properties efficiently. Third, Fannie’s action prevents these foreclosed properties from being sold on the open market, perhaps exacerbating the housing downturn and economic recession.
While some states such as Minnesota have passed stricter laws to protect tenants from foreclosure, other states are dragging their heels. For now, here’s some advice for prospective and current tenants. Existing tenants should be wary if they suddenly become inundated by advertisements from local bankruptcy lawyers – this indicates the owner may be facing foreclosure. Prospective tenants should perform a credit check on a property owner. Also, look out for default or sheriff sale notices posted on the property (and don’t take the owner’s word, if he says things are “under control”).
Further, check public records online or in your local county records office to see if the owner is failing to make payments or the property is in foreclosure; and while you’re at it, check to see if the owner owes property taxes or association dues – both clues that he may owe mortgage payments as well. You can research your local foreclosure laws online too. If you don’t have the time (or patience) to perform such due diligence, at least make sure to watch for a landlord who asks for an unusually high deposit or a number of advance rent payments.