REO to Rental — A Good Idea?

Professionals in neighborhood development organizations, code enforcement and eviction courts have unhesitatingly panned the concept of putting vacant REO housing into the hands of national corporate landlords.  The main beneficiaries of this may be civil rights and tenant rights attorneys in states where they can get fees from landlords in litigation.

The enthusiasm for the concept seems to be isolated in the upper echelons of financial institutions and investors with no practical experience managing rental property at scattered sites.  You can read more about this from a recent column (Debate Intensifies About REO-to-Rental Initiative) that appeared in mortgage servicing industry magazine.  Or in this comment from the Federal Reserve Bank of Cleveland (Three Reasons Why Converting Vacant Homes to Rentals will be a Challenge in Some Places).

As a lawyer whose practice of 25 years has included landlord-tenant law, fair housing law and community development law, it seems woefully unrealistic to expect remote management of 1-4 family dwellings by profit-seeking landlords to be successful.  In fact, it will probably do serious harm, not only to the houses and tenants but also to the neighborhood stability on which mortgagees depend for extraction of mortgage payments from those next door.

Of course, the GSEs offloading excess vacant REO property may not pay a price for another half-baked idea.