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Right-To-Rent Act Provides Relief For Foreclosed Borrowers
May 3rd, 2010
There is a new law on its way
to the House of Representatives intended in providing post relief for
homeowners who lose their homes to foreclosure. The Right-To-Rent Act 2010 is intended to reduce the displacement of
ex-homeowners as a result of foreclosure and to preserve communities. The
provision of this bill will allow ex-homeowners with foreclosed homes to remain
in the property by paying fair market rent for up to 5 years. Dean Baker’s blog
proposal on the Washington Post suggested 7-10 years.
The founder of the
‘Right-To-Rent’ idea is Dean Baker,
a co-director of the Center for Economic and Policy Research. The act is
intended to increase the security of homeowners, allowing them to remain in
their homes by paying fair market rent evaluated by an independent assessor. He
proposes for Congress to temporarily change the foreclosure rules thus allowing
homeowners facing foreclosure the right to remain in their homes as renters.
Dean Baker’s reasoning is
that the housing bubble has made the cost of homeownership and mortgage
payments out of line with average rental rates. As a consequence, in most
inflated property bubble markets, mortgage payments combined with taxes,
insurance and other related costs is twice the cost of renting a similar
unit.
Baker says the Right-To-Rent
Act will allow families who cannot meet their mortgage obligations to remain in
their homes as long as they pay market rent. This will allow their children to
continue attending school, provide them adequate time to prepare and plan their
future transition. Baker also commented that the plan will also provide incentives
for lenders or investors to grant more modifications for struggling borrowers.
In the event of a foreclosure, the lender or investor may end up receiving nothing.
According to Dean Baker in
his proposal, the program requires no tax dollars, no new bureaucracy and an
immediate post relief for millions of homeowners in foreclosure.
While Dean Baker initiated
the idea, Raul M. Grijalva (D-AZ) and Marcy Kaptur (D-OH)
introduced the Right-To-Rent Act on tax day of April 2010. Mr. Grijalva, an ally of House Speaker, Nancy Pelosi said that
creative solutions were needed in the nation’s foreclosure ridden communities.
The act is intended to solve
2 problems simultaneously.
- To aid banks in recovering unpaid mortgage bills.
- Allowing families to remain in their homes.
Grijalva sees a mutual benefit for both parties. If it is not
legislated, the negative result will be for banks to continue writing-off bad
loans while families abandon their properties and cities vacant out. The act is
intended to minimize and reduce the above.
How Does The Program Work?
Within a week of receiving a
foreclosure letter, the owner-occupant can agree to a fair market rental
agreement. The rental rate will be evaluated by an appraiser under the
supervision of a judge. If the ex-owner or tenant continues to pay the agreed
fair rent, the bank or new owner cannot proceed with an eviction at will.
As proposed by Dean Baker,
the lender will take ownership of the property and has the right to sell the
home. A normal landlord-tenant lease will transpire for a set duration of time
set by Congress or until the ex-homeowner decides to move somewhere else.
The Lending Industry Opposes
The lending industry will not
be amused with the proposed Right-To-Rent Act as it shifts the balance of power
to homeowners. Lenders will be against the new rule as it interferes and
complicates the existing contractual agreements they have with borrowers.
Conclusion
In the closing of Dean Baker’s
words:
- Right-to-rent rules are a way to help the homeowners
who are suffering because of the failure of the Fed to rein in the housing
bubble and bad mortgage practices. It does not provide any windfalls – foreclosed
homeowners will still lose their homes – but it does provide housing security
to millions of families who desperately need it.
Comments
News Archive
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Foreclosure Rescue Scams Preying On Homeowners - August 17th 2009
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Subprime Brokers Involved In Loan Modification Scam - July 21st 2009
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'Own-To-Rent' The New Emerging Mortgage Plan - July 17th 2009
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