What Happens to Tenants if the Rental Property Goes into Foreclosure?April 27th, 2010 by Staff Writer
A rental property that goes into foreclosure is owned by the bank. In most cases, the banks give the tenants 30 days notice after taking back the property from the landlord. There’s no warning of the foreclosure from the landlord or the bank prior, and renters have to scramble to find temporary housing.
How It Works
The person or entity holding the mortgage that has been defaulted on, which is often a bank, is the owner of the rental property when it goes into foreclosure. They have the option to hold onto the property, or sell it at a public sale. In most cases, it’s sold at a public sale. A bank doesn’t get directly involved with the sale, but hires a company to take care of it. As a tenant, you’re not in a good position, because a bank is not interested in being a landlord. If the renters have repairs and other issues, they’re on their own.
Who Collects Rent
The worse part about finding yourself in the middle of a foreclosure is that because you won’t know what’s happening until 30 days before a sale, you still pay rent to your original landlord. Some landlords don’t notify renters that the rental property is in foreclosure, and continue to collect rent as if nothing is happening. Trying to get that same landlord to maintain the premises or otherwise uphold the lease agreement is a waste of time. They have no incentive to respond, and many don’t.
What Happens to the Lease
A foreclosure trumps the lease agreement as long as the mortgage was in place before the lease agreement, according to most state laws. The lease no longer exists in the eyes of the court, and the only requirement on the bank’s part is to give the proper notice to terminate the lease, which is 30 days.
A tenant living in a rental property that goes into foreclosure must vacate. If a tenant refuses to leave, they’ll be summoned to court for an eviction lawsuit. Evictions have a horrible effect on trying to rent future apartments. Landlords look at the rental history and won’t rent to a tenant who’s been evicted, even if the property was in foreclosure. This makes finding future housing very difficult, and there’s not much protection under state laws for that.
Some states protect the tenant from an eviction when a rental property goes into foreclosure. These include Massachusetts, New Hampshire and New Jersey. The tenant has to violate the lease in order for the new landlord to successfully evict the tenant. For example, the bank can evict a tenant who fails to pay rent in these states.
A tenant who finds out that the rental property is in foreclosure should do everything possible to find another apartment and move out. They won’t get much help with maintenance and repairs in that situation, which makes living there not worth it.