If you\u2019re facing potential property foreclosure, one of your many worries is probably what happens to the tenants currently renting it. Will they be evicted? Can they sue you? You\u2019re not alone – with one in 12,448 properties in the US getting foreclosed, this scenario is far from uncommon. That\u2019s why it\u2019s always advisable, not just for the tenants but for the landlords as well, to get acquainted with the topic and learn what happens to tenants when a property is foreclosed, their rights and obligations in such cases. <\/p>\n\n\n\n
No one wants to see their property foreclosed. There are various ways in which you can attempt to avoid it. The good news is that house foreclosures typically don\u2019t happen overnight. Instead, the process can take up to a year or even longer, allowing landlords enough time to find a more palatable solution by, for example, resorting to debt consolidation.<\/p>\n\n\n\n
Like any foreclosure, foreclosure on a rental property typically happens when the homeowner has violated the terms of a mortgage loan, either by failing to make timely payments or by defaulting. It is, in essence, the repossession by a mortgage company of a property that is being leased to a third party. <\/p>\n\n\n\n
What happens in foreclosure is that the homeowner receives the legal foreclosure notice, after which the property is seized and sold at a public auction. The mortgage companies can start the process as early as 60 days upon a missed payment, which is why it\u2019s vital to stay on top of your mortgage payments. <\/p>\n\n\n\n
Foreclosure can be avoided provided that the landlord takes action as soon as possible. This is, altogether, the least painful option not just for the homeowner but for tenants facing eviction from a foreclosed home as well. One of the first things you can do is contact the mortgage company and try to reach an agreement to avoid foreclosure. You may also not be aware that the Coronavirus Aid, Relief, and Economic Security Act, passed by Congress to help people get through the COVID-19 pandemic, allows homeowners to claim forbearance and freeze their monthly mortgage payments for up to 12 months. <\/p>\n\n\n\n
However, if foreclosure is imminent, it\u2019s important to know the exact tenant rights when the landlord is in foreclosure and what role they have in the process. After all, these tenants have most likely been carefully selected through thorough tenant screening<\/a> procedures and have been regularly paying their rent. One could argue that their indignation at the prospect of being evicted is entirely justified. That\u2019s why in the next section, we\u2019ll go into detail about the legislation protecting tenants\u2019 rights, possible sanctions awaiting landlords, and what you can do to avoid them. Heads-up: Being open and honest in your communication is the best way to handle the situation.<\/p>\n\n\n\n From 2009 until 2014, the PTFA regulated these situations, with the principal premise being that the lease comes first. Under this act, regardless of what happened with the property, including foreclosures, the lease terms were to be followed in full. Even month-to-month tenants and renters without a lease were covered, as the new buyer had to provide them with a 90-day notice before asking them to move out.<\/p>\n\n\n\n There was a slight exception for people looking to live in the property they bought at a foreclosure sale that was already occupied by a tenant. Namely, what happens to tenants when such property is sold is that the new buyer, although they are obliged under the PTFA to issue them the same 90-day notice (the notice length is even longer in some states), doesn\u2019t have to wait for the lease to expire. <\/p>\n\n\n\n There is also the \u201ccash for keys\u201d option that new owners might offer renters. Within this deal, renters would get paid to vacate the property early.<\/p>\n\n\n\n Note that, in some states, the new owner must initiate an eviction proceeding against the renter – and it takes a judge\u2019s warrant to start the eviction process. No one would be able to hold this eviction process against the renter for renting a foreclosed home, which is important to note if one is worried about having an eviction on their public record. In fact, in some states, such as New York and Illinois, the records are sealed so that no one can use the fact against the renter, and it won\u2019t come up even in the best background checks<\/a>. Using the information against the tenant in the future is also prohibited by the law.<\/p>\n\n\n\n When the PTFA was done away with in December 2014, many were left wondering or even panicking about being a tenant in foreclosure, as the rules depended mainly on the state the renter lived in. The main understanding was that if the original landlord sold the property regularly, the new owner must respect the lease, but that the lease would end in case the property was foreclosed.<\/p>\n\n\n\n Luckily, the Economic Growth, Regulatory Relief, and Consumer Protection Act, which was signed into law on May 24, 2018, brought back the PTFA permanently. Many misconceptions circling the internet and outdated information caused some panic, but in reality, the PTFA still protects tenants\u2019 rights in foreclosure. <\/p>\n\n\n\n As mentioned before, foreclosures typically don\u2019t affect tenants until eviction notice goes into effect. In this light, tenants are still obliged to pay rent on the property, and the landlord, in return, is still obliged to make repairs and maintain the property in a habitable condition. <\/p>\n\n\n\n However, in particular circumstances, a receiver might be appointed to handle the tenant-landlord agreement while the foreclosure is in progress. In those situations, the receiver takes on the landlord\u2019s duties, including collecting rent after foreclosure, managing repairs, and other tasks usually handled by the landlord or property management company<\/a>.<\/p>\n\n\n\n Occasionally, the new owner of a foreclosed home doesn\u2019t even establish any kind of communication with the tenant, which can pose a problem, especially with maintenance. Under these circumstances, the new landlord still has the right to collect the rent and any repair receipts. This way, the tenant can negotiate the costs of repairs against the rent due with the new owner. <\/p>\n\n\n\n Further Reading<\/strong><\/p>\n\n\n\n Since what happens in foreclosures is not pleasant for either the landlord or their tenants, good communication between the two parties is essential. <\/p>\n\n\n\n One of the tenants\u2019 legal rights is to sue the old landlord in small court for any expenses they may have to pay to relocate, such as moving costs or the difference between the rents for the remaining months of the lease. You might be able to avoid this if you inform your tenants of foreclosure as soon as possible and try to communicate a solution even before the official process.<\/p>\n","protected":false},"excerpt":{"rendered":" If you\u2019re facing potential property foreclosure, one of your many …<\/p>\nThe Protecting Tenants at Foreclosure Act of 2009<\/strong><\/h3>\n\n\n\n
The Abolishment and Reintroduction of the PTFA<\/strong><\/h4>\n\n\n\n
What Are Tenants\u2019 Obligations During a Foreclosure?<\/strong><\/h3>\n\n\n\n
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Communication is Key<\/strong><\/h3>\n\n\n\n