TENANT RIGHTS WHEN A LANDLORD FORECLOSES

Are you a tenant and the house you are renting is going to be sold in foreclosure? Thousands of tenants have found themselves in this exact situation since the real estate market began declining. Tenants do not understand their rights when facing foreclosure, and our law firm works with tenants every day to give them advice and information to protect their rights.

In a property that is being foreclosed, tenants more often than not end up with the short end of the stick. In many cases the tenant continues paying the rent while the landlord defaults on the mortgage payments for that property. Eventually the bank starts the foreclosure process and sends a notice to the tenant or occupants of the property that they have to move out. This notice used to only allow a tenant has three days to move out before the bank can evict them. Additionally, some banks have tried to force the tenant to leave by turning off the utilities.

In order to prevent these types of actions and to protect tenants living in a property that is being foreclosed, the federal government passed S896 also known as “Helping Families Save Their Homes Act.” This new federal law makes it more difficult for banks and landlords to abuse the system and take advantage of tenants. Unfortunately, not many tenants are aware of their rights under this federal law. The Helping Families Save Their Homes Act applies to homes foreclosed on after May 20, 2009. The following are common questions or concerns that tenants have, and an explanation of how the federal law protects tenants.

DOES THE NEW OWNER HAVE TO HONOR MY LEASE AFTER A FORECLOSURE?

The answer to this question depends on who buys the property at the foreclosure auction.

If the property is sold at the “Trustee Sale” and is purchased by a private party that intends to move in to the foreclosure house, then this new owner can break the lease and give the tenant 90 days to vacate the property. The ability to break the lease only applies in this narrow circumstance where the new owner actually wants to live in the foreclosed home. However, if the property is purchased at foreclosure by an investor, or no one buys the property and the bank now owns it, then the tenant’s lease stands.

If there is a year-lease contract between the landlord and the tenant, and the property is foreclosed after May 20, 2009, the bank must recognize that lease. Tenants, in this situation, have the right to stay in the property until the end of that year-lease. However, the lease must have been in existence before the “Notice of Default” (NOD) was recorded. The NOD marks the beginning of the foreclosure process. Additionally, a real tenancy must exist for this to apply – you cannot sign a phony tenancy with a friend or family member to get extra protection. In the event that no tenancy existed prior to the NOD being recorded, a tenant will have only 90 days to vacate the property after the foreclosure. Similarly, if tenants have a month-to-month lease, they are entitled to only 90 days before the bank can take steps to evict them.

DO I HAVE TO KEEP PAYING MY RENT BEFORE AND AFTER THE FORECLOSURE?

In order to prevent breaking the lease, the tenants should abide by all conditions of the lease and continue to pay rent to the owner who holds the rights over the property and the lease.
Before the actual “Trustee Sale,” which takes place at the end of the foreclosure process, the current landlord of the property is entitled to collect rent because he still owns the property. After the “Trustee Sale;” however, the person who purchases the property or the bank will inherit the lease entitling them to collect rent.

MY LANDLORD WAS PAYING FOR MY UTILITIES – DOES THE BANK HAVE TO KEEP PAYING THEM AFTER THE FORECLOSURE?

Yes. Regardless of there being a lease or not, if the former landlord was responsible for the utilities, the bank must continue to provide utility service. It is illegal for a bank or a real estate agent to try and force a tenant out of the property by turning off the utilities, also referred as “Constructive Eviction.” Banks can be liable up to $100 for each day that utility service is turned off.

HOW DO I KNOW IF THE HOUSE I RENT IS IN FORECLOSURE?

Checking to see if the lender has began the foreclosure process on the property by recording the “Notice of Default” is simple. A tenant can call the county’s tax assessor’s office where the property is located. They know when the NOD was filed and if there is “Trustee Sale” scheduled.

I RECEIVED AN EVICTION NOTICE – HOW DO I KNOW IF IT’S LEGAL?

Regardless if there is a lease or not, landlords and banks cannot serve tenants with an eviction notice until after the 90 days have passed. If you are a tenant who has been served an eviction based on less than 90 days notice, you should seek legal help.

WHAT IS “CASH FOR KEYS” AND AM I ENTITLED TO IT?

Banks are not in the business of managing properties, they are in the business of lending and investing; therefore, they will frequently offer money for tenants to relocate. Usually banks will offer tenants between $2000 and $5000 to relocate within 2 weeks. This allows the banks to sell the property immediately free of tenants. Tenants that have the ability to relocate quickly within the time frame offered by the bank, instead of the time allowed by this federal law, could use the money for a security deposit elsewhere. Tenants should remember that there is no “right” to collect cash for keys. It is normally offered by the bank as an investment in getting the house vacated quickly. However, if the bank is offering cash for keys to you, the amount of money you received and time frame for you to move out is negotiable. Our office frequently represents tenants in cash for keys negotiations.

CAN THE NEW OWNER EVICT ME WITHOUT GOING TO COURT?

No! After a foreclosure, the new landlord cannot put you out without court permission.

DOES THE NEW OWNER HAVE TO MAKE REPAIRS?

Yes. After a foreclosure, the new owner is your new landlord. The new landlord has the same job as your last landlord – repairs, maintenance and paying for utilities. If you do not know who to talk to about repairs or questions about the property, get in touch with the person who gave you the papers about the foreclosure. This person might be a broker, a real estate agent, or a lawyer for the new owner. Demand that the new landlord make the repairs and keep the utilities turned on. You should also complain to the new owner, or their agent. Send them a letter complaining about the conditions and keep a copy of the letter for your records.