Government-paid rent no guarantee to avoid foreclosure
Eight years ago, Marian Flowers of Huntersville was preparing for early retirement. She was enticed by the prospect of a steady retirement income, so she bought several houses at around $70,000 apiece. Then she rented three of them to low-income renters who qualify for government rent subsidies, under the federal Section 8 program. She got tired of keeping up with tenants' demands. She explains, "Before you know it, they're calling to say fix this and fix that. The property ends up just going down. And then Section 8, when they come out to do their inspection, if you don't fix it then they get ready to cut off the money." She throws her arms up in frustration. "And you weren't making anything toward it because the rent was going toward fixing up!" So Flowers gave up. She let the three houses go into foreclosure in April, August and November last year. As a result, the people living in them were kicked out. One of them was Clover Smith who scrambled to get out and look for a new home. "I had to get a storage and then I had to find a house. Then I had to look for houses and I had other people looking for houses for me It was kind of hard," says Smith. The Section 8 program provides rent subsidy vouchers for very low income families. Renters must pay 30 percent of their monthly adjusted gross income. But if they report zero income, the entire rent is covered. The Charlotte Housing Authority's Section 8 Director Ellis Mitchell says the government assistance program takes a hands off approach. He says, "The housing relationship is typically between the landlord and tenant. One of the things we have to do per year is go out and do an inspection to make sure it meets standard housing codes." Ellis says it's up to landlords to do their own background checks on tenants. It's also up to tenants to do background checks on landlords. The Charlotte Housing Authority certainly doesn't. For example, landlord Erik Neelsen had his first foreclosure in October 2007. By April, he had eight foreclosures overall. The most recent was in January of this year. Yet, Neelsen was still listed as a Section 8 landlord. We showed up at Neelsen's south Charlotte home. He refused to talk on tape, but said over three years his houses did not appreciate. Plus, he said tenants didn't do anything to maintain his properties. Mitchell says once a landlord is signed up, his office doesn't check up on them again, other than making sure their properties meet the code. But last June for the first time the Charlotte Section 8 office started requiring proof that landlords in fact owned the properties they claimed and that their mortgage and taxes were up to date. That's just a one-time check for each property that enlists. Mitchell explains properties that have been on the roles since before June did not and will not get the same check. "Landlords currently under contract prior to that because we have a contract with them, I can't make them provide that information," he says. The program does not verify a landlord's finances. As long as the property is up to code, the rent should be on time every month. Around the country, some places do more to make sure that tenants aren't renting from foreclosed landlords. Boston attorney Judith Liben advocates for Section 8 tenants whose homes end up in foreclosure. She says that's important because subsidized income can't guard against everything. "It doesn't mean however that the Section 8 owners are any less susceptible to everything that's gone wrong in this mortgage market. They may have over-leveraged. They may have borrowed when they shouldn't have. They may have paid too much for their house. So even though they have a fairly consistent income, the problems could be the same." Liben says there's no way to tell just how many Section 8 properties go into foreclosure. She says tracking from state to state differs because foreclosure laws in each state differ. From talking with her Legal Aid peers around the country, Liben says it's more prevalent in larger urban areas, and also happens in rural areas. In Charlotte, a random check of an April list of Section 8 landlords turned up close to a dozen foreclosures. And there were even more property tax delinquencies flagged with foreclosure warnings. But we know there have been more foreclosures. The Charlotte Housing Authority only provided a current list of Section 8 landlords. While Erik Neelsen was on it, Marian Flowers the landlord who gave up wasn't.