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Bill Bars Banks From Evicting Tenants During Landlord Foreclosures

KENNETH R. GOSSELIN

February 20, 2009

There's a new fight to keep more Connecticut renters from being kicked out of their homes if their landlord's property is foreclosed.

Legislators and Legal Aid lawyers are pushing a bill in the General Assembly that would prevent banks from evicting tenants during landlord foreclosures. It's a common practice to empty buildings to make them ready for the market.

The legislation mirrors a recent major policy change by mortgage giants Fannie Mae and Freddie Mac that allows renters who are up to date in monthly payments to remain in their homes even if the landlord goes into foreclosure.

Lawyers at New Haven Legal Assistance Association Inc., an agency that helps low-income clients, have also written to seven major banks that are pursuing 150 evictions across the state, asking them to change their policies on foreclosed properties that have tenants.

The banks are Deutsche Bank, Wells Fargo, Bank of America, JPMorganChase, Citigroup, Bank of New York and U.S. Bank.

Fannie Mae and Freddie Mac changed their policies under pressure because of a provision in last summer's $700 billion financial services bailout bill. But banks, mortgage lenders and servicing companies aren't bound by that law if they hold the mortgages in their portfolios or act as a trustee for a package of loans sold to investors.

At a press conference Thursday, U.S. Sen. Christopher Dodd, chairman of the Senate Banking Committee, lent his support to the legislation. Dodd was a key figure in pressuring Fannie Mae and Freddie Mac to adhere to the renter provision in the bailout.

State Rep. Tim O'Brien, D-New Britain, who introduced the bill, said it made sense to keep tenants in their homes and not leave empty buildings that might be targeted by vandals, hastening a decline in property values.

"They got a $700 billion bailout," O'Brien said. "They owe us something."

Amy Eppler-Epstein, a lawyer for the New Haven Legal Aid group, said she believes the proposed legislation would pertain to state- and federally chartered banks. State banking laws usually pertain only to state-chartered banks, but Eppler-Epstein said the proposed law would apply to all banks because it deals with tenant rights.

The issue could be murky because several of the banks listed in the letter said Thursday they act as trustees and are not involved in the evictions, even though their names are listed on court documents.

They said it's the servicing companies, which collect payments, that pursue the evictions and the sale of the property.

"That's their line," Eppler-Epstein said. "The reality is if you look at the cases, [the banks] are the plaintiffs. They are bringing the cases."

Eppler-Epstein said she believes the banks have more clout with the servicing companies than they are acknowledging.