A Chicago City Council committee has just passed an ordinance designed to protect tenants who live in foreclosed rental properties. Under the ordinance, lenders that repurchase a foreclosed property at the sheriff's sale would be required to give existing renters $12,000 in relocation expenses per rental unit or to give those renters leases with annual rent increases no greater than 2%.
The relocation expenses provision was added to the most recent version of the ordinance. As expected, it has received some pushback from lenders and realtors. Mortgage lenders claim that the ordinance would make mortgages in Chicago more expensive and would make lending in the city less attractive overall.
But then again, mortgage lenders say that about every attempt to hold them accountable. $12,000 in relocation expenses seems rather high, but perhaps that's the point. If keeping a paying tenant in a building is less expensive than making that person vacate, then market forces should prevail and we should see a decrease in post-foreclosure evictions.
It's also worth noting that most people don't fully understand their rights as a tenant in foreclosure. If renters can rest assured that they won't be put out on the street overnight, then they may remain in a property instead of vacating the moment they catch wind of a foreclosure filing.
According to the Chicago Tribune, some local realtor organizations are not too thrilled with the $12,000 provision. One of the main objections is that it will make renting more expensive. It is hard to see how that could be the case -- the only way this would increase the cost of renting is if new landlords choose to evict a tenant and pay the $12,000 required under the ordinance. It's worth noting that the ordinance would not prohibit a landlord from evicting a tenant who is not paying.
Quite simply, the cost of relocating tenants will only be incurred at the landlord's election -- it is not as if this is an additional tax or fee being assessed on every rental unit in the city.
Foreclosures have presented a big problem for the State of Illinois and the City of Chicago. Empty properties create blight and attract crime. During 2012, vacant properties in Chicago received seven reports of criminal activity per day. It's clear that the glut of abandoned buildings in Chicago is a major problem -- until the financial sector can help provide a workable solution, it should stop shooting down attempts to do just that.