Renters across the country have been in dismay over the past few years as wave after wave of foreclosures has crashed upon the market. The reason is obvious: If the landlord enters the foreclosure process and loses the mortgage, then the lender can evict the present occupant – regardless of any previous rental agreements between the former owner and the current tenant.
This has led to a lot of fear from renters who view their living situation as uncertain – particularly those who rent because they cannot otherwise afford to buy a home. Fortunately, renters have rights even if their landlords are facing foreclosure.
One key law that renters should know is the Protecting Tenants at Foreclosure Act, a measure signed into law in 2009 by President Obama. This law says that any renter caught in the middle during the foreclosure process can stay in the home for the duration of the lease. (There is one exception: If the buyer of the home at the foreclosure auction intends to live in the premises, the lease can be terminated with 90 days’ notice.)
If you are a month-to-month tenant, you will have no less than a 90 day notice before the lender clears the home through eviction. And if you have a lease agreement with a “just cause” protection from eviction clause, you are safe even if the home changes hands.
From a practical standpoint, renters also benefit from a clogged foreclosure process that is so weighed down with home foreclosures and distressed properties that the average tenant can stay there for months, even years, before having to leave.
This is especially true in states like Florida and New York, who both have judicial foreclosure procedures in place with an average timeline numbering in the years instead of months or weeks.
There is also the consideration that the lender – or even the new owner – does not want to evict you at all. Instead, the owner may prefer to keep a paying tenant in place, instead of having to find a new one or do something else with an investment property.
Finally, if a home is lost to foreclosure and the tenant has to leave, the tenant can sue the former landlord for damages in a small claims court because the landlord would have violated a clause known as “covenant of quiet enjoyment”. This basically means that the landlord will take all measures to ensure the tenant can enjoy and use the property without interference – including breaking the lease agreement. Foreclosure would accomplish exactly that, thus opening the landlord up to damages.
Renters, take note: You do have rights even if your landlord cannot stop foreclosure and loses the home.