She said she called her landlord, who told her that he was trying to refinance the house and to keep paying him rent. “I was paying the rent, but he was not paying the mortgage,” Kennedy-Florez said.

Soon after, the house went into foreclosure, and Kennedy-Florez immediately heard from a law firm representing Freddie Mac, the federal real estate lending agency that held the note on the home. “I had to decide whether I still wanted to be living there while they were showing it to potential buyers,” she said.

Kennedy-Florez’s situation reflects a problem that tenants rights’ groups say has been flying under the radar since the home foreclosure crisis began in 2008.

They say thousands of renters have lost security deposits, paid rent to former landlords who no longer owned the house, and agreed to move on short notice because they didn’t know their rights.

Kennedy-Florez accepted a cash settlement to move three weeks after the foreclosure in November 2009. She received the check the day she moved out but struggled to come up with the security deposit for a new rental in El Cerrito, Calif.

The landlord still owed her a ,200 security deposit and has been paying it back in 0 and 0 installments, she said.

“I jumped at the first place I could find,” she said. “I’m hoping this place isn’t shaky, too.”

Kennedy-Florez’s former landlord said the home had been foreclosed but that he had paid back the security deposit in full.

Some foreclosure situations have probably been resolved to the satisfaction of landlords and renters alike, said Gabe Treves, program coordinator with rights group Tenants Together, which is based in San Francisco.

But Treves said his agency has helped 3,000 renters squeezed between landlords who are behind on their mortgage payments and lenders trying to recover their investments.

“The vast majority of the tenants we talk to are having their rights violated,” Treves said. “Banks are being very aggressive in trying to get the tenants out, because they are stuck on the idea that if tenants vacate the home they can sell it.”

Wells Fargo Bank is committed to following all rules that protect tenants who are living in foreclosures, spokesman Jason Menke said. At the same time, Wells Fargo is in the business of lending money for home purchases, not in managing rentals, he said. “Generally, it’s our object to get a new owner into the house as quickly as possible,” Menke said. “It’s in our best interest and that of the community to return properties to the market.”

California Attorney General Jerry Brown launched an investigation into the issue last month, partly in response to the Tenants Together report.

Brown sent a letter in June to California banks, lenders, investors and law firms asking them to explain their procedures for dealing with tenants in foreclosed properties in an effort to find out whether laws are being broken.

Tenants are protected by a 2009 federal law that allows them to stay in their units for 90 days after a foreclosure notice is posted, but they have other rights as well:

-Renters can insist on staying in their units until the end of their leases, except when the new owner of a single-family home wants to move in.
-They can require banks and their agents to put all communication in writing.
-They are not required to take cash incentives to move out before the law requires.
-Harassment, such as changing locks without a court order, entering the home without permission or shutting off utilities, is illegal.

In addition, 16 cities in California, including Oakland, Richmond, Berkeley and Hayward, have just-cause eviction ordinances that rule out foreclosure as grounds for an eviction. Tenants have the right to continue renting the home indefinitely absent any other grounds for eviction unless the new owner wants to move in.

Wells Fargo sends tenants a letter outlining their legal options if it forecloses on the house where they live, Menke said. The bank often offers cash incentives for tenants to move out before the three-month period has passed.

The bank also honors lease agreements as long as the tenant has a copy of the lease. But if the bank sells the house, tenants have 90 days from the sale to move, said Wells Fargo spokeswoman Mary Berg.

“If the new owner wants to move in, then the tenant is no longer protected unless the new buyer decides to keep the renters there,” Berg said.

Lynne Codde and her daughter Shelby were renting an Antioch, Calif., home that was sold at auction. The new owner, a property management company, offered them 0 to move out immediately, she said. “We just kind of laughed at them and went online and found out what our rights were,” Codde said.

She said representatives of the company started showing up twice a week to ask them about their plans to move. One day a woman showed up who claimed that she had rented the house from the new owners.

“Three or four weeks in, they called and asked us how much it would take to get us out,” she said.

The property company eventually agreed to pay them ,000, which they used to put down a security deposit and first month’s rent on a house in Fremont, Calif.

(c) 2010, Contra Costa Times (Walnut Creek, Calif.).

Distributed by McClatchy-Tribune Information Services.

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Copyright© 2010 RISMedia, The Leader in Real Estate Information Systems and Real Estate News. All Rights Reserved. This material may not be republished without permission from RISMedia.

Here is the real scoop: More and more, lenders are requiring that a property be listed with an agent before they even start the short sale review. Some lenders are even requiring that a copy of the active MLS listing sheet (Multiple Listing Service) be supplied in addition to the listing agreement to prove that the listing is truly in place.

For those of you that are still holding to the belief that listing the property after the valuation is completed is the way to go, than allow me to present some arguments that may sway you in the other direction…

Finding end buyers (especially if short sale becomes retail) – Whether you are doing a wholesale short sale or a retail short sale you will need an end buyer. But you’ll especially need one if you end up having to roll your wholesale short sale transaction into a retail short sale (remember whether you are buying with intent to resell for a profit, your duty to the homeowner is to get their property sold!). And since the market is still somewhat slow, then it’s all the more important to get the property listed sooner as opposed to later to give yourself more time to find an end buyer.

List price can positively affect BPO value- In the same way that the current list price may negatively affect the value that the BPO comes in at; it can also work the other way. If the list price is at the right number, and has been reduced several times (more on this in the next point), than it will further validate your offer and show the BPO agent that the property really is worth what you are offering.

List History- This is one of the biggest tools that you will utilize as a short sale negotiator. This especially comes into play when you’re working on a property that doesn’t need much in the way of repairs, but may still be in a region where the market is really slow. This is why it is not only good to list properties before the BPO; but in some cases even before you submit the short sale package. That way you can build a list history that will aid you in your negotiations by enabling you to provide written evidence of what the property is not worth.

Government Loans- When working short sales on properties that are backed by government loans (for example: FHA), you may find that you not only have to list the property immediately, but list it under certain standardized guidelines dictated by the government agencies. FHA guidelines for example, dictate that the property must be listed at a given price for three months before the price can be reduced.

Here’s a quick story from a fellow ManageMyShortSale.com member (an online Short Sale and Loan Modification Training and Management Tool) and licensed real estate agent: they recently called a loss mitigator after the BPO had been completed to check the short sale status. The loss mitigator used a public online resource to verify the listing’s status. They saw that the listing had been withdrawn and threatened to close the file unless the property was immediately relisted. You must understand…lenders don’t demand that the property be listed just for the sake of being listed. For them, it serves as further evidence of local market conditions and helps give them an idea of what the property is really worth.

While some lenders still don’t care at the present time if a property is listed, or won’t waste the time forcing you to list it—most will. And for these lenders some of the old ‘tricks’ that you may have been taught may no longer work! So if you are an investor, working with agents could prove to be your best asset. They know the market, may have strong buyer’s lists, and can do a lot of the leg work for you. If you are a licensed real estate agent you can now get more business from investors that will now need your services in order for them to buy and resell homes at a profit.

Also, some of you may be concerned about re-marketing when there is an active listing in place…just remember that the offer you currently have into the foreclosing lender is a “signed and accepted” contract with the homeowner and that the property can simultaneously be marketed to re-sale buyers through your contractual right.

And so, make sure that you get your property listed right away because these days most foreclosing lenders require it, and because it will ultimately benefit you anyways. We encourage all our visitors to ask questions or leave a comment in the section below, We hope to hear from you soon!

Related posts:

1. How to Get a Buyer Prepared to Close a Real Estate Short Sale Transaction
2. Case Study: Tough One Becomes a Successful Short Sale
3. Distressed Properties Drive One-Third of Sales