Preparing Your Property–and Renters–for the Risk of Foreclosure
- Apr 16, 2008
Some renters who thought they’d wait out the housing decline before buying may find the slump is landing at their doorstep anyway–and it could leave them homeless.
That’s according to an article today in the New York Times that highlighted some of the problems renters are experiencing as landlords default on their loans.
From declining service to flat-out evictions, renters are feeling the
subprime sting–and they often get little notice their living situation
is about to change.
Rental properties are now involved in 38 percent of U.S. foreclosures–168,000 households, CBS estimates.
The hardest hit areas are ones that have experienced tough housing times since the decline began, according to CBS–Nevada, New York and the other usual suspects.
- New York has no shortage of rental units: In 2006, they were about 65.6 percent of all New York City; nationally, rental units comprise 32.7 percent of housing.
It makes sense that New York would be a concern. The more pricey the real estate market (click here for Forbes’ recent list of the most expensive rental cities), the more danger renters are in: Refinancing expensive homes is tougher in today’s market, and as money becomes tighter, in many cases, owners with find larger mortgage payments will have a harder time making their monthly obligation than ones who own less expensive properties.
- In Massachusetts, 23 percent of all foreclosure petitions in February involved two- and three-family homes: And those make up just 11 percent of the housing in the state, according to the Warren Group.
As a property owner, avoiding foreclosure is an obvious goal–but in today’s tough market, it’s important to recognize that things happen, and having a few plans in place can help ease a foreclosure or close-to-foreclosure situation:
- Be ready for vacancies. According to the Greater Lowell Landlords Association, a regional landlord advocacy group in Massachusetts, the main reason landlords in the state are defaulting is because of a lack of funds. "You have to be able to handle a vacancy," Dick Macdonald, president of the association, said. "This is
a tough business, and right now there is a shortage of residents. A lot of good ones bought condos."
- Be vigilant about keeping current with utility and other bills. You do not want the country to put a lien on the property because of unpaid taxes, water or other bills. Warning should be given, but be aware that lenders and municipalities are nervous these days because of the hefty amount of defaults and foreclosures.
- Consider moving in. If you own a multifamily property as a business investment, unloading your primary residence (if you can, at a decent price) and filling a vacancy yourself could help your overall budget.
- Wait things out. With home values falling, selling your building now may not be wise–and although the home price market is trending downward, it’s creating a number of new renters, which means more business in the future.
- Help out your renters if things sour. If your property does enter into foreclosure, you may have very little negotiating power with the lender, but suggesting they give renters some time to get out doesn’t hurt.
In addition, some banks are offering displaced renters a "cash for keys" option, where renters receive a little financial assistance to move.
Stress that it could be worth their while: About half of all foreclosed properties are handed over to the bank with considerable damage, according to a national survey of 1,500 real estate
agents by Washington, D.C.-based marketing and research firm Campbell Communications.
And–considering residential properties that aren’t damaged are losing value left and right these days–that’s a situation nobody wants to happen.