The news headlines are full of stories about single-family homeowners losing their homes to foreclosure. Few stories, however, deal with the fate of renters in apartment buildings, or other rental properties, when their landlords can't pay the mortgage on the property.
Here in Chicago, according to the Harvard Joint Center for Housing Studies, an estimated 14,000 property owners lost their properties to foreclosure last year. An estimated 20% of these foreclosures involved multi-family rental properties, large and small.
What happens to the timely-paying tenants once the bank takes over the building? They often get the heave-ho, and are forced to leave.
Illinois law does not require landlords or their lenders to notify their tenants of their possible mortgage default. When a property is foreclosed upon and reverts to the bank, most lenders do not wish to become landlords themselves, nor take responsibility for maintenance and repairs on apartment buildings they now hold. They prefer to secure the building, rather than take on building management responsibilities.
Since January of this year, the State of Illinois enacted a minimum 120 days notice before a tenant who is paying his rent on time would have to vacate his apartment. Before this new law, tenants were often given far less notice to leave.
Displaced tenants also face another financial headache when the bank takes over - the return of their Security Deposits.
Many cities and towns, including the City of Chicago, require timely repayment of tenants' security deposits - sometimes, with accrued interest. In a foreclosure situation, however, the landlord is difficult to locate or sue, and may have no remaining assets if a tenant does litigate. The security deposit is often not returned.
See our post today at BlogChicagoHomes.com for more details, as well as links to Anne Brennan's story in last Sunday's Chicago Tribune Real Estate Section.
DEAN & DEAN'S TEAM CHICAGO
Indiana faces similar problems in both vacating tenants and the return of security deposits. We recently had one out-of-state owner foreclose on 15-20 duplexes all located in the same neighborhood. All of the tenants were forced to move and I don't think any deposits were recovered.
If tenant rights exist when ownership is passed from one owner to the next, one would consider the bank the next owner and therefore tenant rights should exist. The tenant should be allowed to remain. Banks just are not set up to property managers.
I believe Massachusetts has a stronger security deposit situation. When we lived there while attending a graduate program ten years ago, our security deposit earned interest in an escrow account held by a local bank.
Dan
Dean
That is a sad day for some people
Tom braatz