Renters Get Hit By Subprime Crisis

While Congress debates ways to rescue the mortgage industry, and the millions of homeowners who are facing foreclosure, the truly helpless victims may be innocent renters. Huge numbers of families are being evicted as their homes go into foreclosure, but they have nobody coming to bail them out of the crisis.

Mortgage companies share much of the blame for our current housing crisis, because of their lax policies and high-risk or predatory marketing strategies. Homeowners who took out loans that they knew they couldn't afford are also at fault, as are real estate speculators who leveraged their credit to the hilt in hopes of flipping for profits in a hot market. The debate about who should be held responsible for the mess-and who taxpayers should bail out through government programs-rages on.

But one significant demographic, who cannot be faulted for any of the turmoil, is being victimized. Tenants, the people who rent the homes that are going into foreclosure, are getting kicked out of them, often without any prior notification or the refund of security deposits or prepaid rent. That's because banks are taking homes away from landlords through foreclosure, canceling lease agreements, and evicting tenants in the process.

Laws favor landlords

When a lender forecloses, there's no legal requirement to notify the tenant. Some landlords keep the impending repossession a secret while continuing to accept monthly rent to offset their own losses. Many renting families lose deposits, too, with no way to get them back. Even those who hire attorneys to fight for their rights get little in return, because laws heavily favor lenders and owners, but generally leave renters to fend for themselves without the support of the judicial system.

Families hurting the most

As many as 40 percent of the foreclosures now being processed in some American cities involve rental properties, and those affected the most by the subsequent evictions are frequently children forced to attend new schools. Once a family is locked out of their home, they face a tighter rental market, rent price inflation, and the burden of coming up with security deposits and first and last month rent payments. For an average apartment or home that rents for $800 to $1,200, for example, the tenants need about $2,500 to $5,000 in cold cash in order to finalize a move. That doesn't include the cost of moving, taking time off from work, or paying deposits to get utilities connected.

Protect yourself from homelessness

In order to protect themselves, renters should set aside an emergency savings fund. Most financial counselors recommend that everyone have savings equal to three to six months of living expenses. If you spend $5,000 a month, for example, $15,000 may be the bare minimum needed to weather a financial emergency, such as illness, loss of work, or unexpected eviction due to foreclosure. Meanwhile, confront your landlord with frank questions about his current mortgage situation. Once he misses a payment, the foreclosure gears begin to move, and within a matter of weeks, you could find yourself homeless.