Mortgage crisis hits renters

Landlords with adjustable-rate loans see payments skyrocket

KINGMAN - With existing home sales continuing to drop nationwide, the housing foreclosure crisis appears to be soldiering on, at least for now.

But homeowners unable to pay their mortgages aren't the only side of the issue - landlords are feeling the pain, too. Investment property owners, many of whom purchased homes at the peak of the mid-2000s housing boom, are finding their mortgage payments doubling or even tripling while rents become more and more competitive.

As a result, renters are finding themselves evicted, through no fault of their own, as their landlords face foreclosure.

Helena Baughman is a property manager and Realtor with RE/MAX Preferred Professionals in Kingman.

She said that while it's not a common occurrence for renters to be evicted because their landlords can't pay the bills, it has been happening here, as well as across the nation.

"It is rare, but it only has to happen once or twice for it to be just overwhelming," Baughman said. "Unfortunate as it is, we do have investors, the majority of them out of state. Most own more than one property, and so it's a ripple-down effect."

Baughman said that while a number of factors contribute to landlord foreclosures, the primary culprits are the adjustable-rate mortgages many took out on their investment properties when they initially bought them.

"The big factor was, with a lot of these loans, they were reset," she said. "In essence, the landlord if you will, their payment may have gone from $800 a month to $1300 a month. Rents came down, owners' payments came up - some of them were exorbitant."

Linda Homan is no stranger to this phenomenon. Homan is a property manager for Century 21 Barbara Ricca Realty, and like Baughman, she too has seen mortgage prices jump for property owners, including one owner whose payment went from $1,300 a month one month to $3,300 the next. Compounding this difficulty is the fact that owners cannot make proportional increases in rent without losing the tenants they already have.

"You can't jump a tenant's rent," Homan said. "There's no way you can go from charging $750 to $900."

On the positive side, when owners are forced into foreclosure, they generally give their tenants advance notice so they and the Realtors can begin searching for somewhere else to move to. Both Homan and Baughman's offices take measures to ease the transition for renters in such a situation.

"We manage quite a few properties in Kingman, just under 600, so we can pull from other locations," Baughman said. "Let's say they're paying $725 and the least expensive home we have for rent is $795. We'll contact that owner of the vacant property, explain the situation, and ask them if they'd reduce the rent to $725."

Often times, this solution works, as owners of vacant property are usually happy to get the new rent - Baughman noted that vacancies are currently at an all-time high. But while some owners are willing to drop prices slightly or even offer incentives, like charging no rent the first month if the tenant signs a one-year lease, there are limits to the amount of leeway they can offer.

"$100 is a lot to ask them to drop," Homan said.

When considering properties to rent, Baughman said one good question to ask is how long the property has been rented out. The longer an owner has had the property, she said, the more likely they are to have a stable financial situation.

"(If) those owners had that home for eight years, they have equity in it," she said. "They're not going to walk away from it."

When considering newer rental properties, Homan said, renters should exercise great care and make sure the property owner is in a financially viable situation before coming to a decision.

"If they're renting from the owner their questions need to be: Are you current on your mortgage? Do you have mortgage insurance on that house? Is he looking to sell that house after the market gets better?" Homan said. "If you're going to be a renter for a while, you don't want that house to go up for sale and be ousted again."

But Baughman warned that, in the current environment, even the most stable situations are always subject to the fluctuations of the market.

"People's life situations change, and with the economy the way it is, you cannot guarantee that property is going to be there in a year," she said. "That's the problem with renting - you're always at someone else's mercy."