Gilberto and Margarita, a married couple with five minor children, had moved four times in six years and were seeing the adverse effects of moving to new neighborhoods, with new friends, and new schools. So when it came time to move again they walked around Pilsen to find a suitable place where the landlord might be amenable to a long-term lease.
In June of 2009, they found a two-flat with a “For Rent” sign. They called the landlord who, much to their relief, was willing to give them a five year lease. As their primary language is Spanish, staying in Pilsen was important.
Gilberto and Margarita faithfully paid their rent each month through early 2012 when their landlord stopped collecting the rent. Unbeknownst to Gilberto and Margarita, the building went into foreclosure and was sold at the sheriff’s sale in the spring of 2012. As it frequently happens these days, Fannie Mae took over the property from the lending bank; here, Wells Fargo. The family started getting notices, in the summer of 2012, from two different real estate companies, claiming to work for the new owners. One notice threatened to change the locks on the doors if the family didn’t soon move. The second notice held out the opportunity to continue leasing, but no one returned Margarita’s calls and no one attempted to collect rent or to tell the family where and how to pay.
Gilberto and Margarita were sued for eviction by Fannie Mae, even though they were the innocent victims in the battle between their own landlord and his bank. After attempting to manage the lawsuit on their own for several months, Gilberto and Margarita came to the LCBH Tenants In Foreclosure Help Desk on the eviction-court floor of the Daley Center. The help desk staff identified that the law might require Fannie Mae to honor the balance of the family’s lease, and referred the family to LCBH’s main office for full representation.
LCBH attorneys felt that their tenancy should be honored under both the Illinois Mortgage Foreclosure Law (IMFL) and the federal Protecting Tenants at Foreclosure Act (PTFA), enacted in May 2009 in response to the foreclosure crisis. We felt there was little doubt that, under ordinary, garden-variety state-law contract principles, our clients have a valid lease. The federal PTFA was another, more complicated question. For a lease to be “bona fide” under the PTFA, it has to meet four requirements: (a) the lease must begin before the end of the mortgage foreclosure case; (b) the tenant can’t be the parent, spouse, or child of the mortgagor (the old landlord); (c) the lease has to be the product of an arms-length transaction (entered into by people acting in their own best interests); and (d) the tenant’s rent can’t be substantially less than fair market rent. We knew our clients were home-free on the first three factors, but the “substantially less than fair market rent” was troublesome.
In the helter-skelter, boom-and-bust of the American housing market, how is “fair market rent” determined? At what point in time? What does “substantially less” mean? Who has the burden to prove all of this: the landlord (Fannie Mae) or the tenant? Was this another example of how a law (the PTFA) designed to be a shield for tenants or consumers could be used as a sword against the poor and working class by simply saying: “Your rent isn’t high enough.”
After the exchange of pre-trial investigation materials (discovery) and motions on the merits of the case, the judge determined that a trial was necessary. Not taking any chances, both sides hired expert witnesses to help ascertain fair market rent, and LCBH hired a court reporter. During the five hour trial in mid-December, 2013, the judge decided that Fannie Mae had the burden to prove that our clients’ lease was not valid. At the end, we proved that our clients have a valid lease and the judge concluded that Fannie Mae had failed to prove that the lease was not valid.
After a year of litigation with discovery, motion practice, expert evaluations, and trial, Gilberto, Margarita, and their family get to stay in their home. Despite tenant protection laws passed in response to the foreclosure crisis, we continue to hear murmurs from the community about how families are being compelled to move supposedly because their rent is just not high enough.
LCBH data studies show that a meaningful portion of Chicago rental housing is or has been foreclosed in recent years and, post-foreclosure, is in the hands of banks or Fannie Mae or Freddie Mac. These institutions have little or no interest in being landlords and appear content to expel the tenants and mothball the properties. The scarcity of available housing may, in turn, drive up rents and prompt a new round of accusations that tenants’ leases aren’t “bona fide” because they just aren’t paying enough. How many low and moderate income families will have the wherewithal to resist the pressure of banks and realtors? How many will have the resources to seek and secure the assistance of an attorney? How long will non-profit law offices, like LCBH, have the resources to hire expert witnesses and court reporters to protect otherwise innocent tenants, who have broken no law and have broken no lease? Stay tuned.