Foreclosures often create a ripple effect, unfortunately: many of the properties that have been foreclosed over the past year have been rentals. When a landlord loses a property they’ve rented out, it puts renters in a pretty uncomfortable position. When a property is foreclosed, pretty much any lease or other arrangements made by the owner are canceled and tenants are almost always evicted. Furthermore, in most cases, renters lose any rent paid in advance and deposits. While tenants can try to convince lenders or new owners to allow them to stay on, such arrangements are rare.

What makes the situation particularly awkward is even though a renter may be in good financial standing, he or she may still wind up being penalized. Even worse, landlords often continue to find new tenants for vacant properties even after foreclosure proceedings have begun in some kind of effort to repair their finances. If you’re the tenant in that sort of situation, you’re likely to be evicted soon after moving in. You may have a chance of getting your deposit back if your willing to take your landlord to small claims court, but there is little guarantee that you’ll get any money in a timely fashion — after all, your landlord is already in foreclosure.

How Can You Protect Yourself?

There just aren’t that many options when it comes to figuring out either the status of your current landlord or checking out a prospective rental. While foreclosures are generally open information, most of the ways to check out whether a property is in foreclosure are based on the assumption that you’re looking for properties to buy. There is one website in particular that has created tools to check foreclosures for renters.

RentalForeclosure.com provides a simple search tool that allows you to check particular addresses — the site will tell you whether it has any information on a foreclosure at a given address. It doesn’t promise that there isn’t a foreclosure if its records don’t show one, of course, but if you have reason to be concerned you can contact RentalForeclosure.com. The site will then try to find more current information on a particular location. You can also request that the site emails you automatically if a foreclosure is listed for a particular address.

The site has gone a step further for tenants looking for a new rental: it offers a list of rentals already screened for foreclosures. The list is, so far, pretty sparse — but it’s faster than checking every address you might consider renting through RentalForeclosure.com’s database. It is a brand new feature for the site, so there may be more listings in the future.

Know Your Rights

If you do find yourself facing eviction because your landlord is losing his property in foreclosure, you should contract your local county or city housing agency. Your rights vary greatly between states — and you may still have some obligations to your landlord, at least until the foreclosure is finalized. The time you have to move may also be affected by your local rights.

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I received a press release last week about a company providing short refinancing. It’s similar to a short sale — convincing your mortgage lender to accept whatever you can get in a sale of your house — in that your mortgage lender has to be willing to take less than what you owe for your debt, often significantly less. In a short refinancing, a homeowner refinances a mortgage for less than what is currently owed and the lender forgives the difference between the new loan and the old.

It sounds great on the surface: homeowners get to stay in their houses, lenders get at least a portion of what they’re owed and everyone is happy. At least, that’s the way this press release (from a mortgage company specializing in short refinancing, of course) made it sound.

The realities of short refinancing are a little more complicated. It is one of many options a homeowner might have — and from the homeowner’s point of view it can be a very good one. But while a homeowner might like the idea, most lenders don’t. The simple fact is that most lenders just don’t like the idea, because they’ll face substantial losses on any short refinancing. Lenders can’t afford short refinancing unless there’s just no other way to still make a few dollars off of a house. Even a short sale is preferable — after all, the homeowner that has already proved that he can’t manage a mortgage will be out of the picture.

Advocates of short refinancing have argued that lenders should at least consider the option because of the potential of a lender winding up with houses sitting empty and unsold. But a lender can afford to foreclose on a home and let it sit empty for a few months, if they can sell it for enough money to cover costs down the road. It’s like flat out debt forgiveness — it’s just not an option that lenders can exercise often and still stay in business. Many lenders are also concerned that if short refinancing becomes a more common option, homeowners will try to take advantage of that fact. Foreclosures are scary — homeowners will work hard to avoid them — but the opportunity to reduce the amount a homeowner owes on a mortgage just sounds like a good deal.

It is possible to get a short refinance through absolute persistence, as long as the homeowner can prove that he can’t catch up by reducing expenses or increasing income, as well as can prove that he could meet the payments of a refinanced mortgage. A financial review and appraisal are the bare minimum requirements. But short refinancing remains rare. Companies that promise to negotiate short refinances for homeowners are — at best — overly optimistic. I’ve taken a look at several websites for such companies and I know I wouldn’t put my home in their hands. I’d recommend that any homeowner trying to get a short refinance to research their lender’s policies thoroughly and set up meetings to discuss the prospect on their own.

Popularity: 15% [?]

Right now, a lot of home owners are struggling to handle their mortgages: we’ve all heard the stories of rising foreclosures. But Bankrate.com has put together an excellent resource for homeowners trying to figure out the procedures for dealing with their bank and learning just what they need to do to keep their homes by bank. They conducted a series of interviews with nine top lenders to learn the precise steps necessary. These guides are especially useful because each bank follows different steps. They’ve even gone to the effort of including phone numbers. However, the guides are a bit scattered, so I’m including a table of contents here, as well as links to the lenders’ specific websites, which were omitted from the guides.

1. Bank of America: Guide. Website.
2. Chase: Guide. Website.
3. Citigroup: Guide. Website.
4. Countrywide: Guide. Website.
5. IndyMac: Guide. Website.
6. National City: Guide. Website.
7. Wachovia: Guide. Website.
8. Washington Mutual (WaMu): Guide. Website.
9. Wells Fargo: Guide. Website.

Beyond these guides, there is one simple rule of thumb that you should keep in mind when thinking about your mortgage: stay in touch with your lender. If you’re worried about your ability to make payments or about interest rates, or really anything at all, give your lender a call. Keeping in close contact will let your lender see that you really are making an effort, and, in general, that makes your lender more willing to exhibit a little flexibility if you have a problem. Many foreclosures are preventable in early stages, but borrowers might avoid contact with lenders because of embarrassment or other concerns. But avoidance is pretty much the worst approach one can take when trying to handle a problem with a mortgage or other loan.

If your bank or lender isn’t listed, you might want to consider reading through the information from at least one or two lenders. While your lender’s procedures will probably differ, everyone has at least a few similar steps. Then, start making phone calls. It’s a matter of getting in touch with someone in your lender’s office — preferably an individual with the authority to set up a repayment or forbearance plan, or otherwise able to help you make modifications to your current mortgage.

And, even if you are comfortable making your mortgage payments, you should look over this information. Consider it a preventative measure. I’ve actually printed out the information for my bank and tucked it into the file folder I keep for that institution — not because I expect trouble but because I want to be prepared for any eventuality.

Popularity: 15% [?]