What if Your Landlord Defaults on the Mortgage? (US Law)

by PropertyBlawg on June 25, 2012

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It’s a scary thing to think about. You’ve been paying your rent on time to your landlord for years and suddenly there’s a knock on the door. A police officer tells you that you have only a few days to leave your house because it’s been foreclosed upon, maybe even only 24 hours. If you don’t comply, you could be tossed out on the street and all your belongings placed in storage. Can this really happen? Read on to learn more about your rights as a tenant if your landlord defaults on his mortgage.Tenancy agreement legal advice

How Foreclosure Works

First, you need to know a bit about the foreclosure process. Foreclosure is a lengthy and painful process that can take months or years to fully resolve. If your landlord informs you that he’s being foreclosed upon, don’t panic. You may not have to move for quite some time, if at all. Continue paying your rent to your current landlord until you receive notice that foreclosure is complete, and keep up with any repairs on the property. Until foreclosure is complete, your old landlord still owns the property, and can take you to collections if you fail to pay rent. At this critical juncture, you don’t want anything negative that could show up during a tenant screening. You may want to cut your landlord some slack and pay for some of the repairs so he can fight the foreclosure.

You Have Rights

If foreclosure does occur, you still have many rights on your side. In 2009, the Obama administration passed the “Protecting Tenants at Foreclosure Act.” This bill gives tenants the following rights:

Assuming you have a lease that was entered into before foreclosure, and you’re not a member of the immediate family of the landlord:

– You have the right to remain on the property until the end of your lease UNLESS…
– The entity that buys the house after foreclosure intends to live there, in which case you have 90 days to leave.
– If you don’t have a month-to-month lease, or your state allows lease terminations at will, you still have 90 days to leave according to the act.

Currently this act is set to expire at the end of 2012, but there is current legislation in congress to push this deadline back to 2014. As soon as you know that the property you’re renting is being foreclosed upon, you’ll want to contact your state’s HUD office to find out if your state offers any additional rights or assistance for people in your situation.

Once foreclosure goes through, it’s very important that you find out who the new owner is so you can begin sending them rental checks. Your ex-landlord or the county clerk should be able to provide you with this information. You may also get a letter saying that you have a new “receiver of rents.” Send your checks to that address.

Beware of Sneaky Tricks

The new owners may not want you there at all, and may try several techniques to get you out. Banks aren’t in the business of being landlords, and most don’t want to go through court to try to evict you, but there are other options.

One is called a “cash for keys” program. You or the bank can make a deal to leave before the 90 days are up in exchange for cash. This cash is to be used to help you move and find a new place as soon as possible. Generally, you have to agree not to leave any pets behind and keep the property in good condition until you leave. However, many lenders have tried to bully people into taking this deal, and offer far less than what is needed. Be polite with your bank, and itemize your expected expenses for moving out. Be sure to get any “cash for keys” agreement in writing! Don’t try to extort money from the bank this way either. They may withdraw the offer.

There is also another sneaky trick that can be pulled. A bank that forecloses on a property might also name you as a defendant on the case. If you hear that your home is being foreclosed upon, immediately find out if you’re named a defendant on the case. You must be listed by your full name, not “tenant” or “John Doe.” You’ll likely get summons and complaint forms from the court. Immediately speak with a lawyer and with HUD to learn about your options, and file all appropriate paperwork. Most important, keep paying your rent to your old landlord. By filing the appropriate paperwork, you’ll still have 90 days to move out, though your lease may still be terminated after foreclosure completes. You may even be able to negotiate with the new owner to maintain your lease. Again, speak with a lawyer for further details for your state.

Thanks to PTAF, you can no longer be kicked out immediately if your home is foreclosed upon. In most cases you have 90 days to find a new place to live, or you can ride out the remainder of your lease. Learn about your rights! Contact HUD or a lawyer to find out the specifics in your state if you discover you’re being foreclosed upon.

Copyright: Shutterstock | lullabi

This article is from Endre Rex-Kiss, a writer and occasional guest blogger in topics ranging from green energy to real estate. He currently writes for FidelisAM, a US based company providing tenant checks and employment screenings. In his free time he enjoys windsurfing, web design and social media.

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