Confusion Mounting Over PTFA
Numerous lender liabilities have been created as a result of the Protecting Tenants at Foreclosure Act.
Confusion is being expressed over whether or not there is a bona fide tenant in the property and if the lender has an oral lease with the borrower. The statute provides no guidance over what to ask for in order to prove occupancy. Lenders can take an aggressive or conservative approach to have borrowers produce evidence of occupancy. They can hire third party vendors, attorneys or use general counsel to collect documentation.
Speakers at the default super session at the MBA’s National Mortgage Servicing Conference & Expo in San Diego contemplated the best business decision for the lender when it comes to collecting rent. If the tenant is in the property for only 90 days then some of the panelists said it might not be worth it.
“But if the borrower is in the property for two years, then it might be a good decision especially if you cannot get rid of that property or find an investor to take the property off of your hands,” said Cynthia Nierer, a partner with Rosicki, Rosicki & Associates. The choice may also depend on what state you are in. In liberal states like New York, a landlord is defined as someone who owns the property, so the lender may as well go ahead and collect the rent.
“If you want to remove the tenant, the act of collecting the rent is against you,” said Lawrence Garfinkel, managing real estate attorney, Bendett & McHugh, PC. “What is your ultimate goal with the property? It also depends a lot on the condition of the home.”
Lenders and foreclosure attorneys might be worrying that the tenant will call at 2 AM to report their need to have someone fix a problem in the home like a broken toilet. Property preservation companies already have eight hundred numbers in place so tenants can make calls 24/7. So far, under the law, Robert Klein, founder CEO of Safeguard Properties said not many tenants are calling or making requests for repairs, and there has not been a significant change in call volume because of the law.
Lenders are not set up to collect rents. The speakers agreed that it is a real paradigm shift happening these days that servicing shops and lenders even have to consider doing this and are being required to do it under law. As part of some legal proceedings, a court appointed receiver might be put in place to collect rents and interview tenants. If property inspections are done earlier to check on non-owner occupancy status, this is a good idea because it is an independent, third party who is collecting rents. It is imperative that all the money is accounted for prior to a foreclosure sale.
Fannie Mae has created a whole new lease with tenant program that keeps the property inhabitable. This formal agreement helps with neighborhood stabilization. As a result of this, FNMA has not experienced any lawsuits yet, said Miquel Gutierrez, director of alternative REO Disposition at Fannie Mae. There are no evictions, and the agreement turns that possible vacant property and foreclosure into a positive situation with a paying tenant. FNMA’s deed for lease program is available in month-to-month and 12-month options.
“With the tenant in place we can market and sell the properties. If it’s lived in, the home shows better,” he said during the session.
Time is of the essence when it comes to maintaining an asset. Foreclosures can be marketed to investors who can sell them occupied with tenants in lease programs or hold them with tenants inside. If servicers can keep a tenant inside the home, it’s likely the property will be worth more. This is a good alternative to REO and it helps markets where it might not be the best time to sell. If borrowers are given the opportunity to stay in the home, there is a strong likelihood that the property will stay safe and clean.
In the meantime, lenders can focus on the massive amounts of real estate owned assets that already exist, scrubbing files and pushing through those assets that truly need to go into REO. Third party sales are increasing, and experts at the show said we have not yet seen the stabilization of prices – they are still dropping.