Homeowners Rent Out Rooms to Stave Off Foreclosure

Reeling from the recession's one-two-three-punch of job woes, climbing mortgage payments and evaporating equity, desperate homeowners are dipping into a nearby income stream to avoid foreclosure.

That bedroom just down the hall.

While renting out a room has been around for years, especially in the California's Latino neighborhoods, sharing a home in order to save it has become an increasingly popular way to hang on to the front-door keys to the American dream.

"I'm up against a wall and I had no other place to turn for income," said Rafael Porras, a 50-year-old waiter who began renting out a room in his downtown San Jose condo this month after he was squeezed by pay cuts at work and a mortgage payment about to rise. "But I had to do it because I don't want to walk away from this place. "

Whether they've rented out rooms in the past to make ends meet, or a job loss has prompted them to tap into their inner landlord for the first time, many people say their rental income is the only thing keeping them from losing their homes. And for many homeowners — even those whose property is worth less than their loan amount — losing their home is not an acceptable option.

"I can't imagine life anywhere else," said 71-year-old Margaret Licon, who bought her San Jose house 40 years ago and raised six kids in it before losing her husband 25 years ago. With no job, dwindling savings, and rising loan payments, Licon now relies on a houseful of renters to stay afloat — a couple with three kids, an ex-Marine with health problems, and two grandsons shoe-horned into the garage.

"Without my tenants, I couldn't make it," said Licon, who's hoping her lender will modify her $400,000 loan. "But I've been here so long, this house is a part of me. I'd even move into my garage and rent out my own bedroom if it meant keeping my home."

While it's hard to know precisely how many struggling homeowners have turned to renting out rooms, housing advocates have seen a surge in the past year in the number of people desperate enough to give it a try. Especially among the recently unemployed, rental income — along with family loans — has become a godsend.

"Renting out bedrooms is a growing trend," says Sunnyvale, Calif., housing counselor Maritza Wong, who works for the nonprofit Project Sentinel. "And it's not just lower-income people doing it, but even people who were making good money before losing their jobs."

At Project Sentinel, where staffers report as many as 20 percent of their clients becoming landlords under their own roof, counselors are recommending the practice as a way for homeowners to tweak their debt-to-income ratio in order to qualify for a modification.

But a word of caution: becoming a landlord, especially for someone with little or no experience, can bring headaches, from tenants who fail to pay rent to those who are just a pain in the neck to live with.

Before finding his current tenant this month, Porras took in a roommate last year, "but I didn't like it because he was messy. He was watching too much TV. I couldn't even change the channels in my own house."

The situation became untenable, said Porras, because "he took over the place, sleeping in the living room. I had to force him to leave because we were arguing so much. It didn't turn out well."

Often, it's family members moving in together for shelter from the recession. Patty Guertler with Surepath Financial Solutions in San Jose, a center that offers credit and foreclosure counseling, says often it's "adult sons and daughters moving back in with their parents who are facing a financial crisis. It's always been fairly typical in the Latino population to keep the family circle close, but now the recession has made it even more dramatic."

And all that drama can spell trouble. For Milpitas, Calif., homeowner Charles Jackson, sharing some of his most intimate space with three non-family tenants is both a necessity — he's living mostly on Social Security and trying to keep up with a mortgage that's mushroomed because of refinancing — and a challenge. He's renting to a couple, who keep to themselves, and a neighbor who needed a room after the house he was living in went into foreclosure.

Jackson and his roommate, Frank Marquez, are still learning the delicate art of sharing an 1,100-square-foot home. "We've only got one bathroom that we share, so we both got gym memberships to take some of the pressure off. And I've had to set up rules for him so we'd get along.

"Laundry, for example, became an issue," says Jackson. "Frankie works in a body shop and he didn't realize that when you wash something really dirty, like his uniform, it leaves a ring. So he's lost his washing privileges. 'Go the Laundromat,' I told him. 'You might meet a nice lady.'"

SOURCE: San Jose Mercury News. Distributed by McClatchy-Tribune Information Services (c) 2010.