Homeowners Use Room-Renting Site to Dodge Foreclosure

Nichelle Morant was on the verge of losing her three-unit house in Brooklyn, New York, earlier this year, after tenants renting the second and third floors lost their jobs and moved out.

With bills mounting and foreclosure looming, Morant converted the space into a bed and breakfast. Using the San Francisco-based rental site Airbnb.com to take reservations, she was soon raking in $4,500 a month, enough to cover her mortgage.

“This has been our stimulus package,” said Morant, a pastry chef, who lives with her family on the ground floor of the home. “We were going to lose our house.”

For Airbnb -- along with Craigslist and rival rental sites like HomeAway.com Inc. -- the threat of foreclosures is bringing a surge of listings. Local entrepreneurs Brian Chesky and Joe Gebbia didn’t have that in mind when they conceived of Airbnb. They just wanted to take the hassle out of renting out a house, a spare room, or even just a couch.

With U.S. unemployment near a 26-year high and foreclosures in their fifth year of increases, there’s no shortage of homeowners seeking relief. Using Airbnb presents risks, though. Renting rooms forces homeowners to share space with strangers, and amid a backlash from the lodging industry, there could be legal challenges.

Photographer: Michael Nagle/San Francisco Chronicle via Bloomberg

Nichelle Morant stands in front of her home in Bed-Stuy, Brooklyn. Close

Nichelle Morant stands in front of her home in Bed-Stuy, Brooklyn.

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Photographer: Michael Nagle/San Francisco Chronicle via Bloomberg

Nichelle Morant stands in front of her home in Bed-Stuy, Brooklyn.

New York Law

New York lawmakers passed a bill this month, backed by the Hotel Association of New York City and the Hotel and Motel Trades Council, banning rentals of less than 30 days in apartment buildings.

The legislation is directed at larger multifamily dwellings in New York City and not individual homeowners. Still, there’s broader concern about unregulated rentals, said Joe McInerney, chief executive officer of the American Hotel & Lodging Association in Washington, which advocates for the industry.

“What are the qualifications, what are the sanitary things that are going to be done, how are you going to make sure that noise is regulated, how are you going to make sure they’re not parking all over the place?” McInerney said. “You have to take a look situation by situation and area by area.”

Morant, 37, sees short-term rentals as more of a solution than a problem. By converting part of her house into lodging for tourists, Morant has caught up on payments to her lender, Wells Fargo & Co., after falling more than three months behind. San Francisco-based Wells Fargo declined to comment on the pending New York legislation or Morant’s situation, said spokesman Jason Menke.

‘So Many People’

“We’ve made a huge contribution to saving a whole bunch of homes,” said Airbnb’s Chesky, who’s received more than 300 e- mails from customers that were on the brink of losing their residences. “There were so many people who just couldn’t pay their mortgage and couldn’t sell their home.”

A tenth of all U.S. mortgages were delinquent in the first quarter, and more than half of all loans modified under federal relief programs went into default again within a year, according to the Office of the Comptroller of the Currency and the Office of Thrift Supervision. Bank seizures rose to a record 269,962 in the second quarter and more than 1 million properties are expected to be taken back by lenders this year, according to RealtyTrac Inc.

When Chesky and Gebbia came up with Airbnb in October 2007, they were roommates in need of some money. With a design conference coming to town, they rented out space in their house to attendees. From there, they saw a business opportunity and brought on one of Gebbia’s friends, Nathan Blecharczyk, to build the website for Airbnb.

The closely held company was originally called AirBed & Breakfast, because Chesky and Gebbia offered their air mattress to the guests and served them breakfast. They later shortened the name to Airbnb.

Startup Incubator

In early 2009, the three founders -- all in their late-20s -- received an investment from Y Combinator, an incubator for startups. Later in the year, they raised money from venture firm Sequoia Capital.

Airbnb is now used by homeowners in more than 5,700 cities in 148 countries. Revenue is doubling every three months, Chesky said, declining to give specific figures. The company charges an average fee of 10 percent to travelers and 3 percent to the homeowner.

HomeAway, an Austin, Texas-based vacation rental company, uses a different model, charging homeowners an annual fee of $300 to list. The company is adding 15,000 new properties to its website each month, according to CEO Brian Sharples. While few of HomeAway’s customers are at risk of foreclosure, about 20 percent of those who have signed up this year are renting out their vacation home because of economic hardship, he said.

‘Pretty Scary’

For Airbnb users like Lara Hawketts, the situation was dire. Hawketts was in jeopardy of missing loan payments before stumbling upon the site last year. She was relocated to Washington, D.C., from the U.K. in late 2008 by her employer, a technology consulting company. Two months later, the company decided not to expand its U.S. office because of the recession. Instead, it gave her six months of severance at half-pay.

She was in the process of buying a house with a $2,700 monthly mortgage.

Hawketts found Airbnb from an ad on Craigslist. She immediately joined the site, and within days was getting inquiries. By charging about $115 a night, she’s earned more than $13,000 this year, covering most of her mortgage.

“We’ve got bookings that span between now and 2011,” said Hawketts, who has taken a sales job that pays her half what she earned previously. “It’s worked out, but it was pretty scary at the time.”

To contact the reporters on this story: Ari Levy in San Francisco at alevy5@bloomberg.net; Dan Levy in San Francisco at dlevy13@bloomberg.net

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