Thursday, Oct. 4, 2007 | As the number of San Diegans facing foreclosure rises meteorically month after month, landlords and property managers are bracing for an influx of former homeowners now looking for a place to rent.

But foreclosure leaves a big, seven-year mark on credit histories. Under some companies’ policies, such would-be renters might be automatically denied from leasing a unit because of their ruined credit.

As the tenant pool swells with ex-homeowners, however, industry experts say landlords are beginning to show flexibility, as long as the tenants have relatively good credit besides the foreclosure.

“Landlords own quite a bit of property,” said Gabe del Rio, director of homeownership for nonprofit Community HousingWorks. “They know what’s happening in the market with foreclosures and mortgages.”

The landlords themselves are not immune to the pressures of a slumping real estate market, after all.

“If the only bad mark on [a prospective tenant’s] credit is a foreclosure, it’s more that they’re a victim of the market conditions, not that they’re just not responsible,” said Steven Kellman, director of the Tenants Legal Center of San Diego. “Somebody came along and said, ‘Sign here and I’ll get you into a home,’ with the promise of equity riches based on an expected upturning market. And now all of a sudden, they have increased payments along with decreased appreciation.”

In August, the number of foreclosure filings — the public records filed when a house enters or reaches a new stage of foreclosure — jumped by 80 percent from July, and by nearly 250 percent from August 2006, according to RealtyTrac, a nationwide foreclosure tracking firm.

To companies like, an online credit screening service for property management companies and landlords, those rising foreclosure numbers represent a largely untapped pool of potential renters. In the last two weeks, that company has unveiled a new feature that separates a foreclosure from the rest of a tenant’s credit report. If the prospective tenants have otherwise good credit and a good rental history from before they bought a house, the report reflects that.

Based in Oceanside, Wade McGown covers San Diego, Orange and Riverside counties as a regional sales manager for the online company. The company would be foolish to automatically deny tenants who have a foreclosure, he said.

“There’s literally thousands of these people coming back into the rental market every day across the country,” he said.

Once a property management company is alerted to the fact that a prospective tenant has kept up relatively well with other payments like cars and credit cards, the foreclosure can lose its trump power in the rental application.

Rick Snyder, owner of R.A. Snyder Properties Inc., a countywide property management company, uses to screen tenants for his company’s 7,000 managed rental units across the county. Snyder said the credit report that distinguishes a foreclosure from other credit hiccups allows him to rent a unit to a tenant who’d otherwise be rejected. But some conditions apply, he said.

“If the rest of their credit is relatively good, we may have them add an additional month’s deposit as a condition,” Snyder said. “What happens with the foreclosure: it’s increased their risk factor. Other companies, other owners, may take a different position. But from our company’s position, it’s conditional approval.”

Some homeowners who realize their mortgage payment is unsustainable begin to look for an apartment right away, before any foreclosure activity shows up on their credit report.

“In our own company, we are seeing a rise in individuals seeking to move out of their current home prior to the time the foreclosure has occurred,” Snyder said.

When people are looking for property, before or after the foreclosure shows up on their credit histories, experts stressed the importance of being transparent with the landlord or property manager.

Robert Pinnegar, executive director of the San Diego County Apartment Association, said being honest could save money.

“It’s important to be very upfront with the owner or management company of the property,” he said. “If they have a policy that would knock you out immediately, you want to know that before you pay the application fee.”

Del Rio said he and other housing counselors tell prospective tenants with a foreclosure on their record to draft a letter of explanation to the landlord or property manager.

“They’re really going to need to explain that they’ve gone through a situation recently, and why and how that is not a good reflection of their ability to pay rent,” he said. “It could be something like, ‘My mortgage was $2,500 a month and then it adjusted to $3,500. I was not late before it adjusted. And this rental amount is $1,200.’”

But del Rio said many of the families he and other counselors encounter are clinging to their homes as long as they can, waiting until the last moment to put down rental deposits and make their first few monthly rent payments.

“They want to know: when is the last possible day (in my house)?” he said. “Unfortunately, they’re going to wait until their eviction notice. Most people, they have to be pushed to the edge before they take that kind of action. For some, if [they’re] getting free housing for another three months, they’re thinking, ‘How much more money can I save up?’”

But it’s not that families in foreclosure are trying to cheat the system, said Myrna Pascual with the federal Housing and Urban Development department’s San Diego office.

“I don’t think they’re trying to just get by with not paying anything,” she said. “I think they’re just trying to do what’s best for their families, to stay close to schools, and all of that.”

Melinda Opperman, the San Diego-based vice president for community outreach with Springboard Non-Profit Consumer Credit Management, said there’s no one way to approach foreclosure or its aftermath. She said one family might do best to prioritize paying a mortgage, if the foreclosure is “curable,” while another might be advised to maintain payments on cars and credit cards and let the mortgage go.

“In those cases, we want to minimize how many accounts are going to get damaged on the credit report,” Opperman said.

Kellman said a couple of years ago, his center would receive maybe a call a month from someone in foreclosure, wondering what kind of rental situation he or she could qualify for.

“Now, it’s several times a week, people coming in saying, ‘We’re facing a foreclosure —

what’s our best strategy?’” he said. “And others are tenants, saying, ‘My landlord’s losing his home.’”

Still, industry experts said the trend has yet to hit in full force.

“It hasn’t hit in great numbers yet,” said Pinnegar, the apartment association chief. “The speculation out there is that the wave of foreclosures is largely investor properties. … The next wave, that’s what everybody’s watching.”

Please contact Kelly Bennett directly with your thoughts, ideas, personal stories or tips. Or send a letter to the editor.

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