Governor Schwarzenegger has Opportunity to Protect Tenants in Foreclosed Properties

by Zack Kaldveer, Consumer Federation of California, California Progress Report

The Consumer Federation of California (CFC) strongly urges Governor Schwarzenegger to sign AB 1333 (Hancock) – a bill that will protect tenants in foreclosed properties and help keep families in their homes.

California is facing the most devastating foreclosure crisis since the Great Depression ‘ and the worst may still be to come. Last December, the Center for Responsible Lending estimated that nearly 500,000 Californians would lose their homes to foreclosure due to reckless lending practices and lack of regulation in the subprime market. A staggering 500 homes a day are being foreclosed on in our state with the highest volume of subprime adjustable rate mortgages scheduled to reset this fall.

Mortgage servicers recorded 121,341 "notices of default" in California during the April-through-June 2008 period. That’s up 6.6 percent from the 113,809 for this year’s first quarter, and up 124.9 percent from the 53,943 in second-quarter 2007, according to DataQuick Information Systems.

Foreclosures devastate working families struggling to make ends meet, drive hard working people from their homes, decrease the property value of surrounding neighborhoods, deplete the desperately needed tax revenue of local governments, and is a key factor in California’s plunging economy. Unfortunately, there is more to the story.

Oakland, EBMUD, and the Hidden Victims of the Foreclosure Crisis

One aspect of the mortgage crisis that has garnered little attention from the press or elected officials is the plight of tenants – who through no fault of their own – are being abruptly displaced from their units and even having their water shut off by unscrupulous landlords desperate to force them out of foreclosed properties.

It turns out that Oakland has become ground zero in this critical tenants’ right fight because building ownership changes or foreclosures are not legal reasons for eviction under City Ordinance Measure EE – ‘the Just Cause ordinance’. The downside of this important right has been the use of alternative ‘methods’ by banks and landlords to force citizens from their homes.

The East Bay Municipal Utilities District (EBMUD) reports that water service terminations soared from 330 in Oakland two years ago to 543 service terminations in 2007 – a 65% increase. Between February and July of 2008 alone there were 170 delinquent accounts for multi-family properties in foreclosure that have gone delinquent ‘ with tenants forced to call EBMUD and plead that they keep the water on.

In a letter to the Governor, Just Cause Oakland – a non-profit housing and human rights organization ‘ described the growing epidemic thusly:

‘While there is a good deal of media coverage and general awareness about how the crisis is impacting homeowners, tenants remain a lesser known though equally impacted group. It is estimated that renters live in 22% of properties foreclosed in California last year, and calls from tenants whose homes are in foreclosure as well as tenant rights and service organizations, have increased significantly as foreclosure rates have shot through the roof. Tenants who live in foreclosed properties are being illegally evicted and displaced from their homes. In many cases these are tenants who have diligently paid their rents and had no idea that their landlords were facing foreclosure.

As the banks and financial institutions foreclose on these properties, one common tactic for getting tenants out is for the new owners to refuse to pay the utility bills on the units. This causes the water to be shut off and tenants to be faced with an unlivable housing situation. Many tenants faced with this situation have had to move out under duress as most there is no more important, basic consumer need than water. As you well know, water termination makes homes uninhabitable and threatens the health and safety of its residents.’

CFC has seen first hand the tragic toll the mortgage crisis has taken on Californians across the state and shudder to think of the added humiliation felt when ones water is shut off simply because they unknowingly leased an apartment from a landlord that fell into foreclosure.

A February article in the Oakland Tribune described the human face of the problem:

‘With five kids at home, including an infant, Kimberly Isaac-Ray knows her family cannot go without water. But once her landlord went into foreclosure and a bank took over ownership of the duplex in which she lives, a loss of utilities was one of the things Isaac-Ray had to deal with. Luckily she convinced the East Bay Municipal Utility District to turn her water back on after one day.’

‘Just Cause Oakland’ Leads Effort to Keep Water On, Protect Tenant Rights

Over the past year, Just Cause Oakland, joined by CFC and dozens of consumer, economic justice, local elected officials and housing organizations, spearheaded the effort to protect tenants and hold landlords accountable. Earlier in the year, the coalition convinced EBMUD to order a moratorium on water terminations on tenants in foreclosed properties in which the landlord signed a contract to pay the water bill. But, the agency still lacked the authority to collect the money owed by the owners of the property.

AB 1333 ‘ Protecting Tenants, Enforcing Accountability

In response, Assemblywoman Loni Hancock authored AB 1333, which would require legal owners of foreclosed properties statewide to pay for utility services where the tenants pay the owner for utilities in the rent and grant utility districts like EBMUD lien authority (something that most utility companies already have) to collect what was owed from the individuals and banks that stopped paying utilities.

AB 1333 passed the Senate by a vote of 22 to 15 and the Assembly by a margin of 48 to 29. CFC urges the Governor to stand up to those that are knowingly endangering the health and safety of California families in order to avoid taking responsibility for their own poor business decisions by signing this bill.