Eviction versus Foreclosure, which is worse?

15 Replies

Friends, I came across an ad, on Craigslist that made me think. The ad was of a modern home in a decent area. Of course, the rent was inflated but not by much. The ad listed renter qualifications,  and explicitly said "those with foreclosure are welcome to apply". and those with an eviction “need not apply”.  I’m baffled. Firstly, from the standpoint of a bank, which has lent out several hundred thousand to an applicant, they most certainly would consider a foreclosure to be 10X worse than an eviction (which often times is due to landlord/tenant dispute versus a few months late rent). I know of some landlords who evict on a whim, often after tenants have already vacated. This callous act causes severe damage to a renter's future ability to secure a decent shelter for their families.

It seems to be a statement of class preference versus actual qualification. Those who have foreclosed on a property more than likely lived anywhere from 5 months to 1 year mortgage free (again extremely worse than evictions which are most likely 1-2months of rent in arrears) I know many people (in Florida) who stall the courts and live 5 years in foreclosure and have the nerve to lease out the property and collect rent, paying the bank absolutely NOTHING. Many of those cases in fact "investors" the very people who would NEVER rent to someone with a past eviction, no matter the circumstance.

I don't understand why we throw those with an eviction to the side, while welcoming those who owe several hundred thousand for a home they obviously stopped making payments on and are not-paying the loan back after the foreclosure.

I just don’t understand how that is a more desirable tenant. At the very least, perhaps an eviction is the lesser of two evils? I welcome all opinions as I am trying to embrace a more fair, non classicist approach to this business. 

A person who entered into a residential rental agreement and then does not follow the terms of the rental agreement is a higher risk to me as a landlord. If they did not respond to the notice to "Pay Rent or Quit" or the notice to "Comply or Quit" and had to be taken to court to get them out of another landlord's property, it is highly significant. If a person owes a landlord money and walks, the landlord will most often lose, as the security deposit is rarely enough and even court judgements are often uncollectible. We actually will consider a person with an eviction under some circumstances, but only if full restitution has been made to the landlord and they have not had multiple evictions.

A person who entered into a mortgage agreement with a large financial institution and later fell behind on their payments and the property went to foreclosure is indeed different, especially considering the shenanigans being pulled by the banks and other lenders in recent years. As with any situation, each case must be looked at independently. Most homeowners who lose their homes to foreclosure are not renting the home out to others. If a person did let a house go into foreclosure and continued to rent it out and pocket the money, I would not rent to them. If they were still in arrears to a utility company, I also wouldn't rent to them.  If a person loses their house to a bank, the bank will most likely still win because the bank will have established significant collateral... the house, as well as lender paid private mortgage insurance (LPMI) in some cases.

But your point is well taken, rule breakers are rule breakers. Rule breakers do not make good tenants. I want to rent to someone who can and will pay the rent on time, as well as take care of the property and follow all of the terms of the rental agreement. If they are personable as well, that's a bonus!

Marcia Maynard, Fischer Properties | Podcast Guest on Show #83

My saying is look at every situation and understand the "true" story (not the one people show you first)! If it is what you can accept great! If you can't than don't.

Personally someone not paying their rent I have deep problems. If they have done one eviction, there is a huge possibility they will do it again. Where we are there have been a ton of short sales and foreclosures because of the circumstances in the area and bank. While I would not want to lend to them! They need a place to live and I "personally" have not seen this translate to bad tenant behavior. If that changes my attitude will probably change :)

I guess its popular to blame the banks for foreclosures. But should they be the scapegoat for being house poor, or just walking way from responsibility, or something in ones personal life going bad? Yes renters do sign a lease, but owners sign a promissary note, which oftentimes is a 30 year commitment, much more serious IMO.

To me, banks loans (mortgages) are much kinder on the wallet than renting (increases annually, where most mortgages are fixed).  Nevertheless, renters have no one to blame, just themselves. 



 @Elizabeth Colegrove:
"Where we are there have been a ton of short sales and foreclosures because of the circumstances in the area and bank".

Excellent point, but the "economic"climate of an area affects both renters and buyers especially if they work in similar industries and have access to the same pool of jobs. My point is, you seem to excuse the owners due to economics, but you offer no excuse for renters? We know that mortgage payments are often much lower than what renters have to pay for the same property, and if renters and owners both are affected by down turning economies, why is a foreclosure not just as bad or worse than an eviction? Both can lose their job, both can get sick, both can sustain injury, divorce, etc. What divides renters and owners when life happens, whats the difference? Additionally, since mortgage payments are often substantially lower than what landlords charge for rent, you would think it would be easier for owner versus renter to keep up with payments, no?  Some renters have paid tens of thousands if not more in their lifetimes, having one slip up is cause for alienation? Some may have withheld rent for JUST cause. In real life, Landlords are absolutely NOT infallible, yet they are always in the right on paper when we see the word EVICTION its an automatic judgement. 

Charging a higher deposit seems more fair, than just totally ignoring their application as completely ineligible.
By the way, I love hearing your points of view, this topic is something I've been debating with myself about for a while. Quite a head scratcher.

@Theo Carrazco  

I don't excuse anyone :) At the end of the day as long as our actions and your income are legal, you pay your rent on time, take care of my house so I can rerent it and follow the lease, we are cool.  While I feel that I am a very ethical person, its not my place to judge. People with evictions didn't pay there rent, short sales/foreclosures had nothing to do with rent.

 If I didn't rent to people with short sales /foreclosures, my group would be much smaller even with great everything else! I have not found a correlation to foreclosures and rent. If I did I wouldn't rent to them.

So honestly pay your rent, I don't care :) I found that foreclosure has little to do with the average of not paying. Does that make sense?

 @Elizabeth Colegrove:

"So honestly pay your rent, I don't care :) I found that foreclosure has little to do with the average of not paying. Does that make sense?"

Wow nicely put!

But... to me foreclosure = non-payment and eviction = non-payment. Not to blame non payment of rent on foreclosure. I'm just making the point that a short sale, a foreclosure means someone is NOT getting paid. And yes, banks can resell (But to that point, a landlord can re-rent just as a bank can resell), so again it is equal to me. BUT in my market in Florida, there are so many foreclosures, they all just sit and sit....the bank is NOT getting paid, and much worse, foreclosures from 2003 - 2008 have caused a huge ripple effect in banking economies which in turn effects everyone. So it is pretty serious to foreclose IMO.
Yet, it takes only 2 years to bounce back from a short sale or foreclosure, or bankruptcy and you can get another mortgage. BUT for those with evictions, I know landlords that will not rent to you if you've had 1 eviction in your lifetime. That's extreme in comparison. I'm just comparing what I believe to be apples to apples.

Honestly, I believe that punishments are much lighter for socio-economic classes and the challenges they face, where as punishment is much more severe should someone for a lower socio-economic situation dare break the rule. I believe as we continue this discussion I'm leaning more towards believing that the way we judge foreclosure vs eviction is unfortunately laced with a double standard.

Perhaps we reserve the benefit of the doubt to those with similar "circumstances" in similar socio-economic backgrounds, working similar positions,etc. And we believe they WILL pay their rent more faithfully than say, someone working paycheck to paycheck. I thought that way for a long time, until I saw white collar people, with the means to pay, NOT PAY! Its quite a head scratcher, especially when those who are evicted oftentimes CAN NOT PAY at that particular time. So punishment is reserved for those whom can't help themselves, BUT those who can avoid non payment, they get a second, third, fourth fifth chance. hm... what a world.

Theo, this is apples and oranges, both can be rotten.

Both a landlord and a lender extend credit, lenders lend money, LLs rely on credit as they extend the use of property for payments to be made in the future.

A car dealer may finance a car. A credit card company extends credit as well.

These are different types of credit extended. To each of these parties that extend credit, the most important to each is the type they are dealing with. A car dealer doesn't want to finance to a person who had a repossession, a bank doesn't want to make a home loan to someone who was foreclosed upon, a credit card company won't give great terms to one who pays card accounts late, a LL doesn't want to be in a credit position with one who has a recent eviction.

The most important extension of credit to one who extends credit is that type they extend, not so much as to the types others may extend.

A LL is more concerned with evictions than foreclosure, the LL will never have a foreclosure risk with a tenant, they will have the risk of eviction.

All types of credit are important in painting the picture of the character of an applicant for credit, it shows the financial sophistication of an applicant, their ability to pay as agreed, but poor credit in one area doesn't mean there is a much higher risk in all areas, the risk may be higher than one with great credit, but it is not at a point that disqualifies an applicant from all types of credit.

For consumer loans, the better applicant might well be someone who just had a bankruptcy, the reason is that they may not take bankruptcy again for 7 years, that eliminates the risk of a borrower dodging the payment by taking bankruptcy. But, to secured creditors, they may take a different view, and the cause of the bankruptcy will be more concerning.

So, your LL doesn't care so much about foreclosure, they do care about evictions. :) 

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

@Bill 

I agree 100% an LL should be very concerned about an eviction. I guess I fail to make my point clear. To me a foreclosure at the end of all the smoke and mirrors is an eviction. Better yet, it is a glorified eviction. Is it not? Would be nice to see eviction prevention  just like we have foreclosure prevention assistance. Renters get no help. And to me are judged more harshly. Just an observation. 

Two wrongs don't make a right.  Eviction is a serious issue and often not taken seriously enough.  as @Bill Gulley  indicated.  They may be apples and oranges but both can rot.  Landlords take rent collection as seriously as employees take receiving their paycheck....who keeps working for someone if they don't get paid.  Your two situations are just that two different situations ...both not good ones and separate.  Separate situations are evaluated separately.  Not sure it's worth debating the shades of gray.

Yes George, it's more about character than anything else, I've paid hundreds of thousands in obligations that I really didn't want to pay, but I paid them. The reason why someone failed is the more important aspect, not so much the fact that they failed. Evictions are usually blatant refusals to pay, but sometimes not, foreclosures and even bankruptcies are serious too. Folks who fail in credit matters usually end up paying for it for a long time, it's not just a bang and it's over, penalties can be long lasting. :) 

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

Originally posted by @Theo Carrazco :
@Bill 

I agree 100% an LL should be very concerned about an eviction. I guess I fail to make my point clear. To me a foreclosure at the end of all the smoke and mirrors is an eviction. Better yet, it is a glorified eviction. Is it not? Would be nice to see eviction prevention  just like we have foreclosure prevention assistance. Renters get no help. And to me are judged more harshly. Just an observation. 

Not really Theo, they are two different legal matters, foreclosure goes to title, eviction goes to possession of a property. In foreclosure some rights of an owner are not fully terminated, in an eviction, leasehold interests are terminated.

In some areas there are organizations that assist tenants with evictions, lower income tenants may have a legal aid office available as well. :)

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

There is an enormous difference between an eviction and a failure to pay an obligation such as a mortgage.  In a foreclosure, you agreed with the lender to make payments and you gave them a security interest in a property.  You stopped paying, they foreclosed and took the collateral.  With a properly done loan, there's little risk to the lender.  And foreclosures usually don't result in an eviction.

With an eviction, the tenant had to be physically removed from a property.  Even though the tenant wasn't living up to their side of the agreement (which is bad enough) but then refused to comply with whatever aspect of the agreement they were violating!  EVERY eviction was preceded by a series of steps, usually starting with a "pay or quit" or "cure or quit" notice, a court date, and numerous times when the tenant could have just left rather than continue to fight.  The tenant choose to stay in the property and choose to fight with the landlord.

From a landlord's perspective, a foreclosure is equivalent to a tenant not paying tent, then choosing the "quit" option when I post the pay or quit.  A pain.  Lost income.  But I get my property and we both move on with our lives.  Forcing me through the eviction process is much, much worse.

So, having an eviction on your record tells me that if you violate my lease and I tell you to leave you probably will refuse.  You've already refused once.  You'll do it to me, too.  Sorry, find a different place to leave.  An eviction is a fatal flaw as far as I'm concerned.

Jon Holdman, Flying Phoenix LLC

I like how @Marcia Maynard handles the issue with a potential tenant - basing her decision to rent to them on the tenant's decision as to whether they have, or will, make good with their former landlord and that it was an isolated incident. I would consider this type of tenant.

Tenants have a choice to pay their rent or move. You could say that the same applies to homeowners with mortgages, and many agreed to short sales to avoid foreclosure. Many did not, and had to be forced out.

Someone that doesn't pay their mortgage for whatever reason may justify it by thinking the bank can afford to take the loss. I explain to my tenants right up front that if they don't pay the rent, I still have to pay the mortgage. Those that don't care, and don't pay, get an eviction filing within 3 - 5 days. 

Most Americans treat their primary home as their most important investment. The modern mortgage loan is government-engineered vehicle supporting the practice.

Once this investment goes south, or economics prevent repayment, most homeowners default. It's not a matter of trying to take advantage of the bank--it's a decision as to whether you want to continue to throw money at a black hole. In today's age where people are pressured to pay insane prices to live in relative luxury, people get in over their heads all the time.

Conventional wisdom tells entrepreneurs to fail fast and hard if they're going to fail at all. As soon as you realize you're going down the wrong path, the right decision is always to reverse course as soon as you can. If you've rented an apartment, that decision can be reversed in a year or less--until the lease runs out. A 30-year mortgage forces you to decide between resigning the majority of your adult life to wasting your money on a single bad decision, or moving on with a black mark on your credit. The time between the bad purchase decision and default can be five, ten, even twenty years. Sometimes, they're not even bad decisions at all, but become untenable situations due to divorce, death or disability.

The rent is a current operating expense. It's like keeping the lights on -- if you want to continue doing business, or living, you need to pay the utilities every month. Failing to do so either means one of two things--you don't have basic money management skills for adult life, or you're trying to take advantage of the system. Either one is a dealbreaker in the landlord's eyes.

I completely agree with you @Theo Carrazco  . I think most of the people above are getting too caught up in the definition of what a foreclosure is and what an eviction is. 

To me, the bottom line is that whether someone owned or rented a place, if they don't pay, it's the same thing. Doesn't matter what you call it: foreclosure or eviction. It all ends with that person not paying their obligation.

I don't rent to anyone with an eviction or a foreclosure on their record.

@Michelle L. Thank you for your comment. Your honesty is refreshing and at least you are fair. I get the
impression that some LLs try to rationalize a foreclosure as if it's some sort of act against the homeowner. I think someone earlier posted that the bank's "shenanigans" is to blame for foreclosure s. I think that is a HUGE serving of benefit of the doubt.