Advice for renters if landlord faces foreclosure

This is becoming an all-too-familiar scenario for thousands of renters nationwide who have become the unintended victims of foreclosures. Banks are booting good tenants onto the streets with little to no notice after seizing a property from a delinquent owner, ignoring tenant leases.

In the most troubling cases, families are forced into shelters for temporary housing because they have little savings to cover moving costs, first month's rent and a security deposit at another apartment.

Fannie Mae has pledged to change that with its new renter policy starting this month. The plan will allow renters living in foreclosed properties to sign new leases with Fannie while the property is up for sale, or give the tenants money to move. Fannie has yet to establish the length of the leases, and the amount of move-out assistance will vary by state and property.

Freddie Mac said it would unveil a similar program in a few weeks.

But how does a renter know if his landlord has a mortgage held by Fannie Mae or Freddie Mac? Worse yet, what about renters of landlords who don't?

Fannie Mae plans to reach out to tenants, spokesman Brian Faith said.

"Most tenants don't normally know the details of their landlord's mortgage arrangements, but we'll be contacting the tenants in foreclosed properties we own to make them aware of the option to stay in their home through a lease with Fannie Mae," he said.

The details of Freddie Mac's tenant plan are still unavailable.

The pair own or guarantee about half of the $11.5 trillion in U.S. outstanding home loan debt. Fannie estimates about 4,000 tenants live in the company's foreclosed properties and would be eligible for the plan.

Unfortunately, that's just a fraction of renters facing the consequences of a landlord's foreclosure. Renters in large complexes are probably safe because multifamily loan delinquencies are still very low. But 15 million renters, or about 40% of all renters, live in single-family homes, many of which are owned by mom-and-pop investor landlords. This is where the risk lies.

What should you do if you receive a foreclosure or eviction notice?

"Don't panic or stick your head in the sand. Neither action will be helpful," said Robert Baker, education coordinator at Housing and Credit Counseling Inc. in Kansas.