I knew it was bound to happen, the Subprime mess being what it is. The ripple-effects of the great Mortgage Meltdown is starting to be felt far and wide. It’s most recent victims? Renters.

Articles are starting to appear across various news sources about how investors that have overextended themselves, gorging on Adjustable Rate Mortgage (ARM) covered investment properties are now becoming the next wave of foreclosures. The get-rich-quick schemers are starting to see their plans crumble, as the rates adjust upwards ABOVE the amount of rent they’ve been able to collect.

Problems with the Leveraged Investor

Even with rent rates going up, for the investor that did the ‘zero down creative financing’ options, the rate shift is causing so much pain that they are starting to foreclose at a rate similar to other sectors of the market. What this means? If you’re a renter who thought they were safe to weather out the Subprime mess, think again!!

What’s happening? Landlords are still collecting rents, but have stopped paying the mortgage on the house itself. After around six months of these kind of financial shenanigans, the bank comes in and forecloses on the house and evicts the renters. The sad part? "The renters don’t find this out until they get the eviction notice!". Also, there is little recourse for getting past rent or deposits back when this happens, as either the landlord has spent the money or the banks aren’t conducive to giving money to renters of a foreclosed house.

The Banks Don’t Show the Love

Since banks aren’t in the business of managing property, the vast majority of them automatically evict the existing tenants. Their thoughts; It’s better to have no one in the house (so it doesn’t get trashed by renters, and can be shown IMMEDIATELY for sale to perspective buyers). This causes problems for renters because of the SUDDEN need to move, and all the time, hassle, and expense that it entails.

Things the renter can do to go on the defensive

• In rent-controlled areas or cities, there are already laws in place to prevent ‘instant’ evictions. Contact a lawyer and see if they can at least postpone the eviction.
• Negotiate with the bank. Sometimes it’s just a matter of a good sales pitch. Talk to them about extending the eviction date, or if you REALLY like the house, you might approach them about buying it directly from them. You’d have a history of occupation, and it would save them the cost of fixing up the house and putting it on the market.

Bad, Bad, Naughty Landlord

You might be tempted to be angry with the landlord, but by the time the eviction notice comes, it’s pretty much useless. The landlord is out of the picture and there’s nothing you can do to get him/her back in. Better to just let it go and concentrate on solving your problems.

However, if you’re a landlord thinking of going down this path,.. Do the Right Thing. Your renters trust you to provide them with a home to live in, at a reasonable price. Screwing them over, even when you’ve made bad financial decisions, isn’t the thing to do. When the bad time come, you’ve got to cowboy up and deal with it openly and honestly. It’ll make the outcome better, even in the worst of situations.