How does this affect renters who are living in properties that may be foreclosed upon? And I don't quite understand the process of renting from a homeowner, so someone might have to clarify...but isn't it smart for a homeowner renting out an investment property to charge the amount he/she owes a month on mortgage as rent, so renters are paying exactly the amount the homeowner owes per month on mortgage? If that is the case, if the renters are still paying, how can homes be foreclosed on if the renters are supplying the payments?

@pecan 3.14159265:

Just because you pay your rent to your landlord doesnt mean your landlord is paying their mortgage. That would be my guess anyway.

@pecan 3.14159265: Because not all people who rent property think that way. Some people honestly don't understand why they should do what you just said. My parents have rental properties and they have special bank accounts setup just for those properties. They pay the mortgages FIRST and put the rest into savings. This way the rental property money is not pooled with their household funds and "accidentally" gets spent. Oh, and of course they charge more for the rent than the monthly payments on the mortgage. Charging less than the mortgage is stupid.

@pecan 3.14159265: The issue that started the problems (probably) is that the homeowner was charging more than monthly mortgage, but they had an ARM (maybe even a couple) so after the 5 year grace period, suddenly their mortgage doubled. If they tried to jack the rent on you you'd hold up your lease or move.

The reason they were doing this is that they were hoping the house would increase in value enough that they could refi. into a fixed mortgage with a good rate, which they couldn't get initially with their credit rating, income and 100% down.

@pecan 3.14159265: I can't answer all your questions, but sometimes homeowners might have the rent cover only the interest and they foot the rest of the mortgage payment. It all depends on what they plan to do with the property in the long run. If they plan to flip it later at a profit, this wouldn't be a bad idea (at least a few years ago it wouldn't). You would owe less than the home is worth if you did it that way (and the home appreciates).

It's a bit trickier to make the mortgage payment = rent and depend on that, because if the renter leaves you have to foot the bill until you find another (as well as make repairs to the home, which you pretty much always have to do, regardless of who lived there). It could take a while too, and it's a lot of work.

@secretoftheeast: most of the time, with a decent mortgage, you can charge a competitive amount for rent and still make more revenue than the entire mortgage bill.

I'm not sure of the tax benefits of renting vs. living in a single home or even having investment properties...

The short answer is 'yes.' But that does not remove the responsibility of your landlord to find you new lodgings or release you from your contract. They should also return all refundable deposits, but they won't.

If it happens to you, small claims court is probably your best bet. All though, you might want to think about a class action case if you live in a multi-unit building.

@ everyone

It says in the article that Fannie Mae has a program for renters, who live in homes that have been foreclosed on. They get to stay in there and pay market rent until the place sells.

@loogee: Yep ... basically, the bank (or rather, the management company they hire) will become the landlord now. Such was an issue in the past where the tenants were forced out even though they paid the rent ... the owners weren't paying the mortgage.

Before the downhill slide, folks were buying $500k+ properties with 0 down for investment purposes and 1% neg-am loans; the market rent didn't even cover the interest only portion, let alone a normal mortgage.

@lincolnparadox: A landlord in foreclosure is likely financially insolvent and getting them to pay for anything, even with a default judgment, is going to be an uphill battle. I'm not suggesting you eschew the small claims court idea, but do it with the expectation that it'll be a long time, if ever, that you see anything materialize from it - blood from a stone and so forth.

The responsibility for finding new lodging normally doesn't fall on the shoulders of the landlord though he/she is likely to be held responsible for the expense associated with it. Lease language may tell a different story, but I'm speaking generally. Again, we're talking about getting money out of a landlord in foreclosure - chances of repayment are grim.

@loogee: It was my impression that he was asking: If I'm paying my rent, why are you unable to pay your mortgage?

@snowburnt: That was the gist of my (and I'm a she) question. I get that homeowners can be irresponsible...but maybe I'm just being too logical when i think rent paid toward a mortgage should go toward a mortgage.

Fannie and Freddie have been sitting around wasting time, delaying the inevitable. Start selling off this inventory

@pecan 3.14159265: :-[ sorry, I'm usually better about gender neutrality

@snowburnt: The issue is that many landlords (especially amateur investors) were counting on constant double-digit appreciation and not cash-flowing. It's the same problem that ARM-holders have not being able to refinance.

The rent/buy balance is still well out of whack in most areas. The general rule of thumb is that the purchase price should be 100X monthly rent. Right now many areas are selling for 130x-150x.

@KyleOrton: Precisely...the problem compounds when a landlord starts with one property that they refinance and they use the payout to buy another couple properties to rent...they spread themselves thin and 1 or 2 of their properties either sits empty or the mortgage jumps and everyone gets thrown on their rear.