The Housing Chronicles Blog: Apartment renters now getting caught up in foreclosures

Tuesday, March 17, 2009

Apartment renters now getting caught up in foreclosures

Last year, when I was renting out an investment property in the Southern California desert, I found myself competing on price with homes that were larger, in better neighborhoods and offered nicer appointments. "How could this be?" I asked myself, before being forced to drop my asking rent by 20%, which was ok because it still at least paid the mortgage. The answer? These owners were desperate, and likely trying to get any cash in the door to stave off default and foreclosure. Although I'd try to explain this to potential tenants, they only thought of the short-term benefit, clearly not worried about the potential midnight knock at the door by a Sheriff with an eviction notice.

This year the downturn that hit the single-family and condominium home market is moving to commercial markets, which includes apartment buildings. For Phoenix-area renters at apartment complexes owned by Bethany Holdings Group, they're getting caught up in a meltdown that will very likely rob them of their deposits because the law doesn't protect them when there is a change of ownership. Given that, I wonder how many will simply take a hatchet to the kitchen counter and invite neighborhood animals to mark the carpets? From an MSNBC story:

Nicholle Krause first noticed the weeds sprouting in the usually well-manicured grounds of her 320-unit apartment complex in Chandler, Ariz., in December. Soon, signs of neglect began multiplying: Garbage spilled over from the dumpsters, the water in the swimming pool turned a slimy pea green and the grounds were infested by swarms of bees — especially alarming because Krause is severely allergic to bee stings...

It wasn’t until early March that Krause and other residents learned why the complex – the alluringly named Alante at the Islands — was rapidly going to seed. The property owner, Irvine, Calif.-based Bethany Holdings Group, had abandoned the complex and a dozen other large rental properties in the greater Phoenix area after defaulting on hundreds of millions of dollars in loans.

As panicked renters in Arizona began holding public meetings to explore whether they could walk away from leases, recoup security deposits or sue, it became clear that the scale of the mess was far larger than they had realized. Companies under the Bethany umbrella owned at least 60 — and possibly many more — large residential complexes across the nation, all of which are now believed to be in bankruptcy or receivership, potentially affecting tens of thousands of renters.

The Bethany Group meltdown highlights how few protections exist for renters caught in the foreclosure crisis. That’s a situation that some experts say is becoming much more common...

Click here for full story.


Anonymous said...

If it helps, I watched the same exact thing happen in North Texas after the oil bust in the mid-Eighties. In fact, I was at ground zero for much of it, as I had just moved out on my own in 1986, right about the time the banking industry started to collapse. In our case, it was because banks were foreclosing on whole apartment complexes, and they themselves were going under and being bought out by other baks, and the cycle continued. I lived for two years at one complex just north of Dallas, and it was owned by six different banks and property companies in the first year alone.

In the process, the same thing happened over and over at all of these complexes. My complex had a particularly corrupt manager, and she promptly took the budgeted money for complex parties and promotions and kept it for herself. The same was true about pet and roommate deposits, as she figured that nobody would catch on. The complex garbage was picked up once every two weeks, and trees went to shrub because nobody was pruning them, but she could afford to send maintenance crews into every apartment in the place looking for individuals who weren't paying "pet rent". (She was finally caught in 1989, fired and prosecuted, and those charged pet rent were refunded the money, but that's only because the property fell into the hands of a company that gave a damn. A lot of tenants in neighboring complexes weren't that lucky.)

This brings up a very serious situation for renters, because apparently nobody learned anything from the Eighties about protecting tenants. I just watched a bit complex in Dallas get torn down: the owners deliberately hid the fact that they were selling out to a buyer who wanted to raze the place and build high-rise condos on the space, and the tenants didn't discover this until they were given the 30-day eviction notices. And since the new property owner had a clause in his deed that said that he wasn't responsible for debts incurred by the previous owner? He isn't responsible for paying the tenants their deposits and advance rent payments, and nobody can find the previous owners.

Unknown said...

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