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How Does the Multifamily Foreclosure Crisis Affect Tenants?
November 23, 2009 by Neil · 3 Comments
Ocelot tenant cleaning up an abandoned unit
The short answer is: Tenants are forced to make repairs on their own.
The longer answer is: local and federal officials pass the buck over who should have to pay for such repairs.
These tenants have no owners or managers to turn to. Today’s Washington Post references the now legendary Ocelot Capital Group, which purchased and then abandoned about two dozen apartment buildings in the Bronx. The 25 buildings racked up thousands of Code C violations –the most serious kind — from housing inspectors. How bleak have things gotten? Vandals stole the lock on the front door, giving squatters access to vacant apartments to sell drugs. (Might this be an indirect argument for drug legalization?) Plumbing in the building was disrupted after the squatters broke through the walls and stole pipes to sell as scrap metal.
Not mentioned in the article is the bureaucratic tug-of-war behind the scenes. If a Fannie Mae-run auction had taken place as planned, a new buyer would ultimately be responsible for making the repairs. The City of New York, however, would have made the repairs in the interim, and charged the new owner accordingly. Sen. Chuck Schumer spearheaded the effort to shut down the auction, lest a new investor not timely make the repairs (read: New York City may have to foot the bill). If Fannie Mae stays on the hook, then Uncle Sam would foot the bill for the repairs.
One of the court-appointed receivers for Ocelot properties last month asked a state court to order Fannie Mae to pay him $20,000, saying the company had promised funds to fix life-threatening problems but failed to deliver.
“My responsibilities are clear: collect rents, maintain the property and when it’s dangerous, address it,” said Marc A. Landis, the receiver, a real estate lawyer experienced in foreclosures. “When I don’t have enough money to do that, the lender is supposed to step up to the plate.”
Brian Faith, a spokesman for Fannie Mae, wrote in an e-mail that the company is “concerned about welfare of the tenants,” noting that it has spent $1.7 million to make repairs and provide oil, utilities and insurance, among other items.
Other lenders maintain that tenants need not suffer, even if their buildings face foreclosure.
“This is a business,” said Jamie Woodwell, vice president of commercial real estate research for the Mortgage Bankers Association, a trade group. “The lender has every incentive to make sure . . . the property continues to operate, so that its value continues to be maintained.”
In New York, housing analysts estimate that the number of apartment units in buildings at risk of default because of upside-down loans — in which the property is worth less than is owed on the loan — could range from 50,000 to 100,000.
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Check out what others are saying about this post...[...] 4, 2009 by Neil · Leave a Comment Multifamily Investor has tracked the saga of Ocelot Capital Group’s dilapidated Bronx apartment building portfolio. Omni New York, the winning bidder, [...]
[...] its multifamily portfolio financing. It abandoned 416 units in 14 buildings, leaving its tenants in life-threatening situations. Omni New York purchased the mortgages from Fannie Mae and Deutsche Bank at an unspecified [...]
[...] The 691 open violations include collapsing ceilings, buckled floors and shedding lead-painted walls. [...]