Tfgray’s Weblog

God bless Thomas J. Dart, Sheriff of Cook County, Illinois (aka Chicago). He noticed that evictions had doubled in the past year. Then he noticed that he was evicting people who had paid their rent in a timely and consistent fashion. The landlords were getting their money, just not passing it along to their lenders.

According to DSnews.com, “Just two years ago, there were less than 19,000 foreclosure cases filed [in Cook County]. This year’s total is expected to exceed 43,000.” On top of all the other problems involving people playing monopoly with real houses, the banks were not doing their due diligence, leaving it up to the Sheriff’s Office to determine if the owner inhabited the house. Tom Dart had the courage to cry foul, and not for the first time. Last year he tried to get a bill passed that would at least identify children and elderly residents of properties in foreclosure so that social service agencies could contact them in advance and ease their transitions to other housing. The bill failed.

There’s historic precedent for Dart’s action, as covered by Ann Keating at http://www.examiner.com/x-781-Chicago-History-Examiner~y2008m10d12-The-Trouble-with-Evicting-People-from-Their-Homes-Even-if-they-dont-Own-them

Tom’s not the first to show compassion. The banks haven’t changed a whole lot, either. Accredited Home Lenders filed, then dropped, a lawsuit in a case where Tom refused to evict. And Chicago is not alone:

http://www.boston.com/realestate/news/articles/2007/10/21/default_crisis_is_evicting_renters/

http://www.nytimes.com/2007/11/18/us/18renters.html

http://www.lasvegassun.com/news/2008/jul/27/when-renter-pays-owner-doesnt-youre-out-tenant/

What can you do if you are in this situation? The following site has some useful information:

http://www.caltenantlaw.com/Eviction.htm [Scroll down to "Foreclosures."]

It suggests that by fighting back, you can delay the whole process by 6 months or so, and this might be the most important sentence in the whole article: “You should also know that if you cannot afford the filing fees, you can get the fee waiver application forms from the Court Clerk, and submit them in lieu of actual payment. When in doubt, do that, because it may be granted, it gives you more time, and it protects your case file from others viewing it.” It also warns against “Cash for Keys” agreements, in which you agree to give up your security deposit and residence in exchange for promises they generally don’t intend to keep.

Important disclosure here: this website,http://www.caltenantlaw.com/, is specific to California Tenant Law. Seek legal advice relevant to your home state. 

In the meantime, it would seem that there could be some sort of legal arrangement worked out to get the property shifted from the non-paying owner’s clutches while not disposessing the paying customers. After all, wouldn’t an income-producing property be a more attractive buy than a vacant one? Whether the solution is governmental or private sector, the key would appear to be changing the law that requires a rental property to be vacated before foreclosure. Any thoughts?

After sleeping on it, I’ve come up with one:

• Make the lender’s due diligence include finding out if the owner occupies the property. If not, rather than sending eviction notices to the renters, then would be sent a letter requesting that they show receipts proving they were current on their rents, with a two week deadline. The letter would explain that if they can prove they’re current, they will not be evicted. (Provision should be made that someone who is getting free rent in return for managing the place doesn’t get wrongfully evicted.) Once they have documented their payment status, they would receive instructions to pay their rent to an escrow account. To avoid confusion, the lender could send a couple or three postpaid envelopes to cover the transition period.
• Those who were not current on their rent would be evicted. And yes, Sheriff Dart’s proposal, that those renters be checked for disabilities and age should be included in the proposed legislation.
• The property would be auctioned off at a sheriff’s sale. The funds in the escrow account, less the cost of hiring  someone to manage the building, would go to the lender.

Why do I think this would work, even though it gives the lender an extra hoop to jump through? Because an income-producing property would sell for a higher price than a vacant building, thus bringing a greater return to the lender. The escrowed funds would cover the cost of the added research and the cost of managing the property during the transition period.