Note: A version of this article previously appeared on U.S. News
The topic of foreclosure generally brings to mind stories of homeowners who have fallen on hard times and lose their family home to the bank. But there’s another important demographic being negatively impacted by foreclosures—tenants. Just like owner-occupied properties, when a landlord falls on hard times and can’t pay the mortgage, the bank forecloses and often becomes the new owner of the rental property—and the new landlord.
As tenants in this situation quickly find out, banks do not want to be landlords. Banks typically want to sell fore
closure properties as quickly as possible, and that means evicting tenants as quickly as possible.
Here’s what to do if you’re a tenant renting a property that is being foreclosed on.
If the property you’re living in is being foreclosed on, the bank (or the bank’s attorney) will likely begin sending notices to the property. If you receive these notices, contact the bank (or attorney) immediately and let them know you are living in the property. Also contact your landlord and ask questions to find out what is going on and where things are at with the foreclosure.
It’s possible that your landlord will be able to avoid the foreclosure by reaching an agreement with the bank, or possibly by filing bankruptcy. Ask your landlord for regular updates to keep you informed on what is being done and how the foreclosure is progressing. If your landlord is uncooperative, you may want to check public records to monitor the foreclosure process on your own.
Know your rights
Foreclosure laws vary greatly from state to state. To understand and enforce your rights as a tenant, you need to know your specific state and local laws. These laws can help answer important questions, such as:
Are there any specific protections for you as a tenant living in a foreclosure property?
What is the process for foreclosure and how long will it take?
How long do you have to move out after the foreclosure is completed?
For example, some states have “just cause” laws that limit the reasons a tenant can be evicted and have determined that foreclosure alone is not “just cause.” Similarly, Section 8 leases can only be terminated for good cause, and foreclosure alone is not considered good cause. You may need to contact an attorney to help you understand and enforce your rights.
Follow your lease
Until the foreclosure process is complete, your lease is still valid and enforceable. As long as you continue to pay rent and comply with all the terms of your lease agreement, you are entitled to remain in the property during the foreclosure process. If you fail to pay rent, or breach the lease in some other way, your landlord has the right to file an eviction or other legal action against you. On the flipside of that coin, your landlord is also obligated to continue following the lease even though the property is in foreclosure. If your landlord breaches the lease, you are entitled to file legal action in order to enforce your rights.
NOTE: Similar to living in a rental property that is being foreclosed on, tenants often wonder whether their lease is still valid if the owner decides to sell the property. It’s important to note that the property being sold by the owner is not the same thing as the property being sold at a foreclosure sale. Typically, a foreclosure sale automatically wipes out the rights of third parties in the property if those rights came into being after the mortgage—this includes leases that were signed after the mortgage was taken out. In a normal sale, the lease agreement is not terminated in most cases. The new owner becomes the new landlord and is obligated to follow the terms of the lease. As long as you, the tenant, continue to pay rent and comply with all the terms of the lease agreement, you are entitled to remain in the property until your lease term expires.
Once the property is foreclosed on and the transfer of ownership is complete, you will likely be required to move. In most situations, a foreclosure will terminate your lease, even if it wasn’t supposed to expire until months later. Fortunately, you don’t have to leave immediately. The length of time you have to move will vary depending on your state’s laws, but is usually somewhere between 30 to 90 days. The earlier you start looking for a new place to live, the smoother the transition is likely to go for you.
It’s possible that the new owner might offer you money to move out early—often referred to as “cash for keys.” You can agree to move out early in exchange for money, but you certainly don’t have to. If you decide to accept this type of offer, be sure to get the agreement in writing and that it is signed by all parties.
Foreclosure can be a frustrating and stressful experience for tenants as well as homeowners. Following the steps outlined in this article can help, however the best course of action will vary depending on your specific circumstances. Contact an attorney licensed in your state to help you understand and enforce your rights.
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice. Individual situations will differ and should be discussed with a licensed attorney. For specific legal advice on the information provided and related topics, please contact the author.