Despite taxpayer checks, investigation reveals Section 8 landlords foreclosing on homes

KANSAS CITY, Mo. - Millions of tax dollars are paid to Kansas City area landlords every year through the housing program known as Section 8. It is intended to give low-income families an affordable place to live, but what happens when landlords foreclose on those homes?

A 41 Action News investigation is asking if taxpayers should be required to keep writing rent checks to landlords who are defaulting on their mortgages.

Tenants shocked when foreclosure notice arrives

As a single mother of four kids, Mayjia Johnson has her hands full. The last thing she wants to do is suddenly uproot her family.

But that is exactly what happened last year when Johnson was renting a Ruskin Heights home in the 6800 block of East 114th Terrace.

Johnson noticed the first sign of trouble when she returned from a grocery trip and saw a stranger standing in her front yard. The man identified himself as a representative with a mortgage company and said he was checking to see if the home was occupied.

Shortly thereafter, a letter arrived in the mail, informing Johnson the home would be foreclosed. The unexpected news threw her into a panic.

"I thought my kids were about to be on the street," Johnson said. "I didn't know what was going on. All I knew is we were being foreclosed upon."

Johnson receives Section 8 assistance from the Housing Authority of Kansas City (HAKC). Depending on factors like family size and income, the government pays a portion or all of a qualifying resident's monthly rent.

In Johnson's case, taxpayers had been covering the entire $827 monthly cost. As a result, she knew her landlord had been getting the steady, guaranteed rental income for the past 2.5 years.

"My biggest question was, ‘Where was all that money going?" she said.

Landlord forecloses on homes while receiving thousands of taxpayer dollars

41 Action News discovered Johnson's story was not an isolated incident. By searching Jackson County online records, we found the same landlord had purchased nine homes in 2007 and 2008.

Then, like dominoes, documents show all nine properties fell into foreclosure over the course of a year, beginning in December, 2010.

An Open Records Request to HAKC revealed seven of the properties received government-subsidized rental payments totaling more than $165,000 during that time period.

In several instances, the landlord continued getting rental checks long after the foreclosure notices started showing up in the mail (a process that can drag on for more than six months).

In one case, there were even two monthly payments made to the landlord after the bank took possession of the home.

Milika Moseley was living in a home in the 10800 block of Bristol Terrace when she received a foreclosure notice last May. Like Johnson, the single mother of three was getting her $880 monthly rent paid by HAKC.

"It's stressful. A lot of things go through your mind like, ‘What am I going to do with my kids?'" Moseley said. "It's scary not knowing what you're going to do or where your next move is going to be."

Government says foreclosure is not a breach of housing contract

The 41 Action News investigation started with a tip from a Kansas City area realtor who wondered why HAKC was not cross-referencing foreclosures with its list of landlords receiving monthly payments.

"Why does Section 8 seem to be oblivious to this?" the realtor wrote. "Why should taxpayer money repeatedly go to landlords who are defaulting on their mortgages?"

41 Action News took those questions to HAKC Executive Director Ed Lowndes, who said a history of foreclosures does not get a landlord blacklisted from doing business with the government.

Instead, he said the HAKC is only concerned with the home passing rigorous annual inspections to ensure tenants have a safe place to live. Failing an inspection and not making the necessary repair can result in payments beyond stopped, Lowndes said. However, failing to pay the bank is not a breach of contract.

"There is not a requirement that the landlords use the money we pay for any of their financial obligations, whether it's a car loan, credit card debt or a home mortgage," said Lowndes.

The only exception is if a home with a Section 8 tenant is backed by a federally-secured mortgage.

Landlord responds to questions about foreclosures

Since HAKC does not track foreclosures, it is tough to know how big the problem is. During the course of our investigation, 41 Action News identified several other cases where landlords foreclosed on homes occupied by Section 8 tenants.

When contacted by 41 Action News, Johnson and Moseley's former landlord declined an on-camera interview. He also asked not to be identified, saying the string of foreclosures is embarrassing and has left his family financially devastated.

"We thought this would be a long-term investment that would pay for the kids' colleges," the landlord said. "Now we don't have any savings."

While the monthly Section 8 payments are consistent and always on time, the

landlord said the income does not account for many of the home repairs required to pass inspections. The burst of the housing bubble also reduced the investment property to a fraction of its previous value.

Even so, the landlord said it would make sense to him if the HAKC stopped making payments upon learning about one of his foreclosures.

Should the housing assistance policy change?

Federal law does provide some protections for Section 8 renters facing foreclosures. For instance, new owners have to honor existing leases unless they plan to occupy the home. In those cases, a 90-day warning must be provided prior to eviction.

But Johnson said those safeguards can be overshadowed by fear and uncertainty. She has since moved into a nearby rental property in Ruskin Heights.

"If the landlord is not paying for the property, I think Section 8 should be notified so they can stop making payments and they can also let tenants know what's going on so they won't be in the same situation I was in," she said.

41 Action News asked why a line can't be added to the housing contract, requiring Section 8 funds be used to pay the mortgage.

Lowndes said an amendment like that would most likely come from Congress, which would instruct the US Department of Housing and Urban Development (HUD) to make the change.

However, Lowndes cautioned the shift in rules would add a complex new layer of oversight and resources. He said the government would also need cooperation from banks about getting notification regarding foreclosures.

"If they fix it, we'll enforce it," he said.

Every year, HAKC serves an estimated 7,510 families by distributing $40 million of federal tax dollars to about 3,000 landlords.

Learn more about your rights as a tenant during a foreclosure including those receiving Section 8 funds at: http://tinyurl.com/ForeclosureTenantRights

Ryan Kath can be reached by email at ryan.kath@kshb.com. You can also follow him on Twitter or connect with him on Facebook .

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