Zombie landlords? Part 2, defending your life
[Continued from yesterday’s Part 1.]
Yesterday’s post on the public-policy and market ramifications of the subprime mess focuses on the case, covered in the Boston Globe, of a rent-paying tenant who finds himself under an eviction threat because his new owner is, in rental terms, a zombie.
Blogs — must — read — AHI blogs!
Most residents would be unaware of the risk of being evicted because their owner was foreclosed upon. Goodness knows, I was. An at-will tenancy struck with a particular landlord individual is quite a different thing if the successor landlord is a zombie — an entity that is at best brain-distant, if not brain-dead.
His new landlord is an investment pool called “Carrington Mortgage Loan Trust 2005-OPT2.”
An investment pool named after me?
It was created by Citigroup Inc. in May 2005 to hold $75 million in mortgages the bank had purchased from lenders. Bear Stearns & Co. sold shares in the trust to investors, who receive the payments from those mortgages, and Deutsche Bank manages the trust.
In Parts is Parts, I posted about a complex thirteen-tranche securitization created by Goldman Sachs, and the obstacles that raises for loan modification.
So who decided to evict Matos? The paperwork said Deutsche Bank, which is listed in county records as the formal owner of the building after the landlord defaulted in May. But a spokesman for Deutsche Bank said that was a technicality; the company was simply acting on behalf of the trust, which has terms that dictate what the bank must do in the event of foreclosure.
In short, Mr. Matos is being evicted by a zombie …
I’m just here for the rent
… or a robot.
A robot may not evict a human being, or through inaction,
Allow that human being to be evicted?
The instructions are written in the documents, and the intermediated value chain operates in its pre-programmed way, and Mr. Matos gets ground up.
Tenant advocates say this diffusion of responsibility is no excuse. “If they [Deutsche Bank] have done these agreements, then presumably they could do a different kind of agreement,” said Maureen E. McDonagh, a lawyer representing Matos. “They choose not to.”
Ms. McDonagh is oversimplifying, as litigators are wont to do. Deutsche Bank cannot act unilaterally.
I cannot act unilaterally
For Deutsche Bank to ‘do’ another agreement, it will need consent from all the other participants, most particularly the securities holders. As I wrote in To Mark It to Market, this is non-trivial:
As we explore the business of restructuring non-performing loans (the retail end of the origination value chain), we rapidly become aware, as the New York Times sententiously advised us, that Unseen Forces Are At Work:
Bang the default ball into the servicer – what happens?
There’s a lengthy clacking linkage that goes:
Loan servicing is the business of opening envelopes, capturing the checks that fall out, associating them with a particular loan, and updating the loan amount due. (In these days of modern times, they do it with computers, but it’s fundamentally an administrative function.) Pace the Times, the reason borrowers sometimes find servicers unresponsive is not “because modifying loans cuts into profits.” Profitability in loan servicing is all about efficient processing. Modifying a loan has nothing to do with the servicer’s profits — rather, paying attention cuts into the servicer’s profits, because they’re not set up for it.
I’m not set up for loan modification
The servicer can only ask the unseen zombies that now are the landlord:
A company spokesman said Deutsche Bank had mailed a letter to the servicing companies that manage the mortgages in its various portfolios, asking them to show compassion when possible. It also asks them to make clear in legal filings that Deutsche Bank is not the acting party. “Deutsche Bank isn’t involved in these evictions,” said spokesman John Gallagher.
I think it’s unwise to rely on zombie compassion
There’s also a public-policy case for anti-eviction protection:
The one-two punch of foreclosure and eviction often thrusts three or more families into a sudden housing search. The foreclosures are concentrated in lower-income neighborhoods.
Waves of foreclosures destabilize neighborhoods. Empty houses are targets. Put them together and foreclosure/ eviction might actually lower the value of the resold house — in effect saving the zombie landlords from themselves.
We’re stabilizing the neighborhood
Meanwhile, back in Jamaica Plain:
City Life, an advocacy group in Jamaica Plain, has pledged to block the door of any apartment where Deutsche Bank attempts to complete an eviction.
Yeah, yeah, that’ll work.
I defy you to evict my client!
More promising for those in Mr. Matos’s situation is this:
Tomorrow [That is, October 22 — Ed.], US Representative Barney Frank said he plans to introduce federal legislation on foreclosures that includes a provision that tenant leases remain in effect after foreclosure, and that tenants without leases must receive 90 days notice before eviction.
“Banks will no longer be able to put their convenience ahead of people’s ability to live,” said Frank, who chairs the House Committee on Financial Services.
Frank wants people to be able to live
“We have asked lenders, saying, ‘You really shouldn’t do this.’ Now the next step is to make it mandatory.”
Meanwhile, the Massachusetts Senate passed a bill in July that includes a provision preserving leases. A similar House bill does not include that provision. The two bills dealing with foreclosure-related issues await reconciliation.
We’re awaiting reconciliation
Even the night eventually gives way to morning, this family and neighborhood disruption is probably temporary.
Matos, the only person left in his apartment building, wants to stay, but does not know where to send the rent money. His eviction hearing is scheduled for Oct. 30.
It still sucks, though.
Did someone says, ’sucks’?
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