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Tenant Leasing a House in Foreclosure? What Now?

What Exactly is Foreclosure?

Foreclosure is a legal mechanism by which a lender files suit against the owner of the property for failure to pay back a mortgage note according to its terms. The lender is claiming the owner is in default, and is requesting that the balance of the mortgage be paid in full or that the court sell the property to pay off the mortgage note.

As a Tenant, Why Am I Being Named & Served?

When foreclosure is filed against a property owner who is a landlord, the tenants living in the property must also receive notice (by being served with a Complaint to Foreclosure Mortgage) because the foreclosure may affect the tenants’ legal right to continue living there. The tenant(s) may be listed and served in the Complaint either by name or referred to as “unknown tenant” if the lender’s attorney does not have the information for the tenant(s).

I’ve Been Served with a Foreclosure Lawsuit. What Do I Do Now?

When the Complaint is received, you should read it carefully and review the matter with an attorney to confirm your rights. Although you do not own the property and are not a party to the mortgage, you should file an answer to the foreclosure complaint. The answer you file should state that you live in the property, are a lawful tenant, and pay rent. If you have signed a written lease, you should indicate that and attach a copy of the lease as an exhibit to the answer. Also, make sure to list the date your lease began and the date on which it expires.

The Landlord Stopped Paying His Mortgage; Can I Stop Paying Rent?

No! While the foreclosure case continues in court, be certain to continue paying your rent on time to your landlord under the terms of the lease. Failure to do so will still constitute a breach of the lease and leave you open for eviction for failure to pay rent.

If the Property is Sold in Foreclosure, Can I Be Evicted?

If the property transfers in foreclosure and the new owner of the property attempts to evict you, certain rights may be available to you under the Protecting Tenants at Foreclosure Act of 2009 that allows you to remain in the property for the balance of your existing lease term. The Act requires that a new owner who takes title to residential rental property through foreclosure honor an existing lease until the end of the current lease term. However, be aware of three exceptions to this rule: 1) where an existing term lease is in place and the new owner of the foreclosed property wants to occupy it as a personal residence before the end of the lease term, 2) where a term lease exists but has less than 90 days remaining until expiration of the term, and 3) where the existing lease is a month-to-month tenancy or an at-will tenancy. In each of these situations, the owner need only provide the tenant with a 90-day notice to terminate the lease.

Additional resources provided by the author

U.S. Dept. of Housing and Urban Development;

Neighborhood Legal Services organizations.

(http://portal.hud.gov/portal/page/portal/HUD/states)

Protecting Tenants at Foreclosure Act of 2009

(http://www.fdic.gov/news/news/financial/2009/fil09056a.pdf)

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