Classical Values :: Confiscating property and imposing federal rent control in the name of a new "right"

August 09, 2010

Confiscating property and imposing federal rent control in the name of a new "right"

I just learned about a new idea that's floating around in the left's ongoing war against private property rights. It's called "right to rent" and it would require lenders to rent foreclosed properties their former homeowners for an indefinite period.

The idea is being promoted as as a reasonable win-win solution; in the Washington Post there's a piece titled Right to Rent: A Non-Bureaucratic Solution to the Foreclosure Crisis which makes it sound downright sensible:

It has been almost two years since the foreclosure crisis first became headline news. In this period, President Bush, Congress and most recently President Obama have put forward a variety of programs. None of them has had much impact on stemming the tide of foreclosures. It is time to try a different tack.

There is a simple solution that requires no taxpayer dollars, requires no new bureaucracy and can immediately help millions of people facing foreclosure. Congress can simply temporarily alter the rules on foreclosure to allow homeowners facing foreclosures the right to stay in their home for a substantial period of time (e.g. seven to 10 years) as renters paying the market rent.

Excuse me, but where in the Constitution is Congress given power to write the rules on foreclosure, much less alter them? (Sorry, I guess something like that would only matter to kooks who believe the Constitution means what it says.)

The logic of this change is straightforward. Due to the housing bubble, ownership costs grew out of line with rents. As a result, in many bubble-inflated markets, mortgage payments plus taxes, insurance and other costs could easily be twice as high as the cost of renting a comparable unit. "Right to rent" legislation would allow homeowners who cannot meet their mortgage payments the right to stay in their home as long as they pay the market rent.
The lender would take ownership of the house and would be free to resell it, but the lease would carry over for the duration of the period designated by Congress, or until the former homeowner decided to move. In this period, normal landlord-tenant laws would apply, with the exception that the lender would not have the option to evict the former homeowner without due cause.

normal landlord-tenant laws would apply? What that means is that the banks (and presumably private lenders, such as former owners who carried financing) would have to pay all taxes and do all repairs and maintenance -- for the guy who defaulted on his payments! And naturally, he could be sued for code violations, negligence, etc. Rent could be withheld if the "landlord" failed to perform repairs which used to be the responsibility of the "tenant." Banks would suddenly become landlords, under a new draconian federal rent control scheme, and they would not be able to evict their "tenants."

Such a deal! Naturally, the goal is to to alter an "imbalance of power":

Needless to say, lenders will not be happy about a right-to-rent rule. It alters the balance of power between lenders and homeowners in the homeowner's favor.

It does more than that; it essentially confiscates the property for an indefinite period of time, puts the government in charge of setting rents, and forces a lender to become a landlord against his will.

The congressional bill is H.R. 5028 (the "Right to Rent Act of 2010"), and it simply asserts federal jurisdiction over all mortgages, regardless of whether they are held by banks, S&Ls, or private citizens.

(1) COVERED FORECLOSURE PROCEEDING- The term `covered foreclosure proceeding' means a foreclosure proceeding with respect to an eligible mortgage, and includes any foreclosure proceeding authorized under the law of the applicable State, including judicial and non-judicial foreclosure proceedings.

So it supersedes private arms-length contracts as well as state law. (Naturally, it is to be monitored and overseen by HUD.)

This amounts to federal confiscation of private property as well as federal rent control.

Whether they are serious and whether the bill has any chance of passage, I don't know.

posted by Eric on 08.09.10 at 12:13 PM

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Comments

Barney Miller is on some channel late at night, I was watching last night and they had a two parter about a group of renters who were being evicted by the evil corporation who owned the building.

One guy said, via translator from Spanish to English, "Why can't I just die in my own home?" and of course, Barney couldn't answer.
It must have been from the end of the show when they were less worried about Teh Funny (which they dealt out like few others) and more about Social Responsibility. They never got as bad as MASH, but they obviously went that route at least a little.

I wish I could have responded instead of the proto-lefty writers arguing both sides.

Well Mr. Renter, you can die in your own home, nobody's stopping you. Go buy one and die in it. You see, you're a renter, you don't own your "home", someone else does. If he wants to kick you out to make an indoor beach volleyball court with clam-pit, you're SOL. That's how property rights work.

Veeshir · August 9, 2010 02:54 PM

I may just be a money raising bill, "Look at what those evil XXXs are doing. How about a campaign donation so I can stop them." Or better yet: "Give me some money and I'll quit this non-sense."

M. Simon · August 9, 2010 04:27 PM

What if the former owner, now renter decides to trash the place. I have know of renters that do that. it is one of the benefits of ownership. You have a much greater motivation for caring for the property. I'm afraid many foreclosed renters may have revenge on their mind.

Rob · August 9, 2010 09:01 PM

Rob · August 9, 2010 09:02 PM

How long would the government make the new renters, former owners, pay rent at the market rate?

After all the renters might feel their rents are too high. Wouldn't the Congress reduce the rents? Why not, it wouldn't cost the government anything? And they will have already taken virtually every right from the property owner.

The owner can sell. But who would buy such a house at anywhere near the value of a similar but unencumbered house? Would you?

Yes, someday the owner may get the rights back. But "may" is the operative word.

Any pretense that this would be a temporary law is shameful.

KTWO · August 10, 2010 04:33 AM

Oh, just reading section 4, determination of fair market rent, I see a couple major issues.

You know, aside from the fact that the whole section involves government mandated price controls...

Issue 1: OK, in sections A and B, an independent appraiser will determine "fair rent" and will re evaluate this on an annual basis. Now, I bought my home in 2002, and refinanaced in 2004. I was hoping for a 20% increase in appraised value so I could get out of the PMI payments. I got a 39% increase in property value, and the distinct impression that if I'd been taking money out, not just refinancing the principal, I could have gotten a 60% increase no problem.

If folks are refinancing, they want high appraisals. The appraisers are paid because folks are refinancing, so they have an incentive to appraise on the high side of true. This helps drive the bubble higher (just one cause of many.)

So now these appraisers are getting paid to evaluate "fair rent." Great, what is their incentive. If the government is paying them, they'll be under pressure to undervalue the rents. If half the rents in the neighborhood are undervalued by a couple percent, then next year that can be used to undervalue them a little more.

Issue 2: Part C implies that the gov is paying the appraisers. At least, if the bank or "renter" want to challenge the rent they can, but here they pay all costs. In parts A and B, it is not specified who picks up the tab for the appraisal, so I assume we all do.

So I see a systemic problem where appraisers helped drive house prices too high, then appraisers leave the banks stuck pulling in below market rents for above market home debts.

Only 12 sponsors so far, here's hoping...

Dr_Mike · August 10, 2010 08:34 AM