A recent report from RealtyTrac indicated that one in every 452 U.S. housing units received a foreclosure filing in October, which translates into a 25 percent increase over Oct. 2007. But how does this unprecedented phenomenon impact temporary housing providers? Claims spoke with ALE Solutions' CEO Robert Zimmers about how foreclosures affect the temporary housing providers, and what he expects to be the major issues for the industry in 2009.
Does an increase in home foreclosures offer opportunities for temporary housing providers in terms of an increased inventory or lower prices? Are there caveats?
In 2008, home foreclosures was one of the biggest issues for temporary housing and all that surrounds it. Conventional wisdom says that having these properties on the market would be advantageous to temporary housing providers, but there's more to the story. Yes, there are more properties to choose from. Yes, you can sometimes get a lower price. However, there are a lot of renters in the market right now. Across the board, we have not seen a general discount in overall rental prices, but rather opportunities here and there. I expect that will stay the same in 2009.
A bigger issue is foreclosed properties that policyholders have rented. This is something that I think most insurers have started to become sensitized to because adjusters are seeing policyholders evicted from rental homes with little-to-no warning.
Explain how the foreclosure process can leave policyholders out in the cold.
The process typically involves an unscrupulous landlord who is in the middle of a foreclosure. Due to privacy laws, however, there is no way for housing providers to know it. In order to get cash, the property owner rents the property, takes the deposit, and continues to collect rent until the bank actually gets an order of eviction. A tenant can be evicted without ever knowing that the house was undergoing the foreclosure process.
Insurance companies are starting to see that this is becoming a problem. Does it happen all the time in a company like ours, which handles hundreds of placements a month? We see it once a month or so, which is less than one percent of the cases we handle. Still, it doesn't have to happen very often for it to be very noticeable. All temporary housing companies are looking at ways to protect the policyholder and avoid this situation.
What are some of the warning signs that a property may be involved in the foreclosure process?
The ways to avoid foreclosed homes is to look for the signals. When the owner of the home is a very motivated renter looking for as much money down as possible and it is the first time that the home is on the rental market, it should raise suspicions. Other warning signs include a landlord's behavior and demands. A landlord who wants more than one month's rental deposit, such as the first and last month's rent, or seems to be rushing the deal by not conducting typical due diligence should trigger a red flag. One should also be leery if there is no formal lease agreement.
If a home goes into foreclosure, then the temporary housing provider should contact the bank that has taken ownership and work out arrangements for the family to stay in the home through the end of the lease. At a minimum, the provider should ensure that there is an orderly transition into other housing.
Foreclosures are just one aspect of today's down economy. Do you expect an overall downturn to have other repercussions?
I don't believe the economy is going to affect our industry because fires and storms don't listen to the economy. In fact, if you listen to some, more fires occur during times like this.
The temporary housing industry is a fairly young service. It really only started 20 years ago. It has slowly entered the mainstream to the point that it is now less the exception than the rule for insurers to work with us. More and more, insurers are looking to formalize their relationships with providers like ourselves, which is a positive for our industry. In the past, it was up to the individual adjuster to use or not use a temporary housing service. Now we're seeing guidelines and formalized policies coming from the corporate level, detailing how services should be used. I expect that to increase in the future.
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