The Banks Are Terrible Landlords for Renters, Too

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The Banks Are Terrible Landlords for Renters, Too
By: David Dayen Thursday February 23, 2012 11:06 am	Tweet1

The Administration’s latest big idea to fix the housing market is to find private equity firms or other investors to buy up vacant, foreclosed properties owned by Fannie Mae or Freddie Mac, and rent them out. This would sop up a lot of the inventory on the market and provide stability to home prices, the theory goes. It would also create more affordable housing and get vacant properties filled with renters, reducing blight.

If you listen to the Wall Street Journal, this is now unnecessary, as existing home sales have risen and unsold inventory has fallen to a “healthy level.” But this doesn’t take into account “shadow inventory,” vacant homes not put on the market because of reluctance by the owners to mark the loss on their books, among other reasons. This could stretch into millions of homes; we have no idea. And clearly, the Administration wants to do something about it, hence the rental sell-off plan.

But exactly how much should we trust that the purchasers of these foreclosed properties will end up as good landlords? We can look at some test cases. Banks and investors are already buying up foreclosed properties on the cheap and renting them out. And it turns out, according to an excellent NPR expose, they habitually fail to follow state housing codes.

Pedro Jimenez signed the lease for his second-floor apartment in 2006. Since then, he says, “Here was leaking water. Part of the ceiling [fell]. See all the windows crack.” The panes are completely shattered; vandals broke them, he says [...]

His 7-year-old son, David, plays handyman. While his father patches the walls with plywood, David covers holes with sticky notes. There are yellow squares in every room but one: a bathroom that has been nailed shut.

“It’s dirty and it’s nasty,” David warns. That’s code for “dangerous.” It has broken plumbing, splintered wood and exposed electrical wires. The original landlord was renovating when he lost the place in foreclosure, back in 2007.

Jimenez recalls a real estate agent coming by one day to collect rent for the new owner, Deutsche Bank. Soon after, the water stopped running altogether because no one paid the bill. The utility company wouldn’t let Jimenez pay just his part; it accepts only full payment for all units in a building [...]

Jimenez doesn’t know that Deutsche Bank actually isn’t his landlord. It’s the trustee representing a pool of investor-owners. JPMorgan Chase, the loan servicer, handles maintenance and tenants. Jimenez has never spoken with bank employees. He and JPMorgan Chase disagree about why repairs haven’t happened, and why rent payments stopped last year.

In Los Angeles, City Attorney Carmen Trutanich actually sued Deutsche Bank for slumlord tactics like this. Banks simply don’t do a good job hiring property managers or landlords, and all too often the homes fall into disrepair, with the renters unable to find anyone to help them fix the problems. That means either shelling out for the repairs on their own or figuring out who owns the underlying property to hold them accountable. And surprise! It’s hard to figure out, because foreclosed properties are being bought and sold quickly and nobody can really track who holds ownership. Sound familiar?

This problem will only magnify with a mass property sell-off program. I can’t see private equity firms or other private investors being much better landlords than the banks. And we’ve seen the regulatory zeal with housing programs at the federal level many times over. Much of this falls to state housing codes, which aren’t really prepared to handle this kind of situation.

Before you rent, you might want to ask, “Who’s my landlord?”

3 Comments

3 Responses to “The Banks Are Terrible Landlords for Renters, Too”

jawbone February 23rd, 2012 at 5:28 pm

Banks –or whomever holds the paper– have not proven to be good caretakers/owners in my community. They don’t get the grass mowed, weeds controlled, pick up the advertising papers, much less take care of the house itself.

On my block, the owner was forced out, after offering to pay rent until the banks had a seller, as the woman hoped her children could finish the school year in the school they were in. No way. Not permitted.

The house was empty and the bank/caretaker never bothered to contact the oil company. No oil, no heat. Cold weather, pipes froze. Then the weather warmed, and the pipes burst.

Neighbors became aware of water running down the driveway and tried to find out who was managing the property. They finally had to contact the city to get the water turned off.

Eventually, the water was turned off, and, months later, the house was gutted inside. The eventual purchaser got themselves a fixer-upper at a pretty good price. Now the place is being fixed up, but, wow, it could have gone very bad very quickly.