Foreclosures Leave Tenants In Trouble In Brand New North Carolina Subdivision

In Gibsonville, North Carolina, the Greensboro News Record reports:

• At least when you rent, you can't lose the roof over your head to a mortgage foreclosure. Can you?

• Well, that's exactly what is happening to almost two dozen tenants who landed what seemed like a good deal on pre-fab rental homes in a new subdivision east of U.S. 29. Within months of moving in, they recently came home to find the notices .

• The California-based investor who owns the houses, so new they don't even have grass planted yet, is in foreclosure. The homes will be auctioned off on the courthouse steps in October, and the tenants must move.

• "There's nobody to call to get my security deposit back," said [one tenant]. "I've got to find a new place, and I'm left with nothing."

[...]

• Tenants said last week they had repeatedly tried to contact the rental agent for refunds of security deposits of $800 to $900 — with no success. "It's a mess," said [another tenant], who like other tenants paid in cash each month to an agent who came to collect the rent. "I thought it was strange. Then when we got these papers, red flags went up."

Reportedly, a new North Carolina law giving tenants in foreclosed property 30 days' notice doesn't take effect until Oct. 1. For more, see Houses of cards: A pre-fab bubble bursts for renters.

For other stories on tenants unknowingly renting homes in foreclosure, go here, or here, or here.

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Postscript: This appears to be one more example of some real estate investors resorting to equity skimming to salvage what they can in an ill-advised real estate investment that they can no longer afford. In such a practice, the landlord pockets the rent from unwitting tenants while stiffing the mortgage lender out of its mortgage payments. The practice continues until the mortgage lender takes over ownership in a foreclosure sale, where it and the tenants find themselves holding the bag (and in many cases, the tenants are out their security deposits).

In light of a recent story out of Minnesota (see Minnesota Builder, Straw Buyers Possibly Involved In Equity Skimming Scam) involving a developer who allegedly either lease-optioned or sold on a land contract a significant amount of his unsold inventory after first selling the newly built homes to straw buyers, I can't help wondering whether the same thing is going on here. The Minnesota developer, Parish Marketing & Development, is reportedly the subject of a current Federal grand jury investigation. equity skimming unwittingly delta