If you rent a home that was purchased in the last few years, there is about a 25 percent chance that the owner of the rental property either purchased it as in an investment or is renting the property because they are unable to unload their current home. The poor housing market and economy is forcing a lot of rental property owners into foreclosure. As a renter, there are 10 things to keep in mind regarding a potential landlord foreclosure.
Lack of Notice
The laws regarding foreclosure and lease agreements vary from state to state, but some states require that a tenant vacate a rental property in as little as three to five days after being served with an eviction notice. Some states allow for up to 30 days. Keeping in mind that once the grace period has passed, a lawsuit for eviction may be commenced if the tenant has not left. With just three to five days notice, a tenant may find themselves in a situation in which being sued for eviction is the only short-term option.
Termination of the Lease
Regardless of how your lease period is, if a landlord forecloses on a property and there is a new owner, the lease may be terminated in all but two states and the district of Columbia. According to Janet Portman, author of “Every Tenant’s Legal Guide,” in the other 48 states, once the new owner takes ownership of the property, the lease is terminated because the new owner was not a party to the lease agreement. There are some temporary federal protections against this in place, which are discussed below.
They Can Check You, But You Can’t Check Them
Many times when you sign a lease agreement, the landlord will ask that you sign a release allowing the landlord to check your credit. This is typical and is a way for landlord to predict the likelihood of collecting the tenant’s rent. However, a tenant will have a difficult time checking the credit worthiness of their landlord to predict the likelihood that a lease will run its course without the landlord foreclosing on the property.
Checking the Property’s Status
While you will have a difficult time learning about your landlord’s credit worthiness, it is a simple stop to the city clerk or registrar to check the property’s status. Typically, mortgage defaults and foreclosures are reported to the city or county in which the property sits. These records can be checked by anyone because, typically, they are public information and can give warning of a pending eviction if a property is in trouble.
If you are tipped off that your landlord is foreclosing on your rental property and you are worried about being evicted, you should seek legal help. There are often free or low-cost legal services available in a community and that have experience in this area of law. It will be beneficial to learn about your rights as a tenant and gain some foresight of what may happen when you attempt rent property in the future.
Suing the Landlord
If you are evicted when your landlord forecloses on the property and the lease is terminated as a result, you may have legal recourse against the landlord. In fact, it was the landlord who breached the lease agreement by being unable to meet the contractual obligation under the lease; i.e. providing the property to be rented for the entire term of the lease. As a result, you may be able to sue your landlord in small claims court for moving expenses and any other financial damages that were incurred as a result of the eviction.
The New Owner
More often than not, the new owner of a foreclosed property is the bank. Banks take the properties as collateral on the mortgages that were used the purchase the property, so the bank is simply attempting to make itself whole after the former owner defaulted on the mortgage. The problem for renters is that banks are not interested in being homeowners or, more importantly, landlords. As a result, the bank’s first strategy will be to evict the renter because the bank will not want to manage the property and to make the home more attractive to a potential buyer.
Cash for Keys
Once the bank takes over ownership of the property, the primary goal is to unload the property, even if that means taking a loss. The banks wants its money back and evicting renters must happen first. However, suing a renter for eviction is a costly measure. Court and attorney fees are sure to cut into the bank’s profits. For that reason, banks sometimes will offer a lump sum to a renter if the renter will voluntarily vacate the property without legal proceedings.
Accidentally Paying the Wrong Owner
If a foreclosure takes place without the renter becoming aware of it, the renter may continue to make monthly payments to the original landlord. A renter that finds themselves in this situation, and learns that improper payments were made to the former owner, should seek legal recourse. Once the property was foreclosed, and the lease terminated, the former owner had no right to benefit from the rental payments because the former owner was no longer providing the rental property as agreed to in the lease.
Damaged Credit Report
When an eviction notice is ignored, the new owner may be able to sue the renter for eviction. The court may enter an order that the renter must vacate the property within a certain period of time, typically as short as a week, or face penalties for violation of the court’s order. The biggest problem with this situation is that the judgment may appear on the renter’s credit report making it more difficult to rent another property in the future.
The Protecting Tenants in Foreclosure Act
In 2009, in the middle of the foreclosure crisis, President Obama signed into law the Protecting Tenants at Foreclosure Act. The law provides protection to renters through 2014 in that when a property changes hands as a result of a foreclosure, the lease transfers to the new owner. A few exceptions are that a month-to-month lease will be good for just 90 days and an owner who intents to move into the rental property immediately can evict the renter right away. There are a few other exceptions that a new owner may attempt to use to evict a tenant, so legal counsel is warranted if you find yourself in this situation.