Tenants who enter into lease agreement on a rental property possess a basic right to peaceful occupancy. This is referred to as the “covenant of quite enjoyment” in legal terms. As long as tenants pay their rent and fulfill their duties in the rental agreement, they enjoy this basic right throughout the life of the lease.
But the past years have seen tenants being asked to leave their rented homes due to foreclosures, even if they had followed the terms of the lease. It has been estimated that about a third of all foreclosures done due to the housing crisis were on second homes and investment properties put up for rent.
During the housing boom in the early 2000s, sub-prime financing was virtually available to anybody, so investors initially thought that rental payments would cover monthly mortgage dues on their purchased homes. But adjustments on their mortgage payments, as well as the slump in home values, led to an unprecedented situation of property foreclosures during the past couple of years. As a result, tenants face the possibility of being evicted even if they had complied with every detail of a lease agreement.
The Foreclosure Process On Rental Property
Most tenants are unaware that the property they are renting may be facing possible foreclosure. They continue to make payments to their landlord without knowing that the latter is in mortgage default or worse, had been issued a foreclosure notice on the property. Landlords have the option of paying their past due installments plus fines within a prescribed period, but most fail to do so and the property is put up for auction to recover the amount of the loan. So the rented property ends up with a new owner if there is a buyer, or becomes bank property if not bid upon during an auction.
Tenant Rights When Rental Property Is Foreclosed
A foreclosure used to wipe out any lease agreement in most US states – the rule known as “first in time, first in right” applied when a mortgage is recorded before any lease is signed. But thanks to the Protecting Tenants at Foreclosure Act of 2009, tenants’ rights are now strengthened. Tenants may now continue to occupy their rented property for the duration of the lease even if the property has been foreclosed, as long as the new owner does not intend to reside in the property. They simply have to make their monthly rental payments to the new owner.
If the new owner intends to make the property his primary home, he is required to provide tenants a 90-day notice to vacate the property even if an annual lease had been signed with the previous landlord. The same applies for month-to-month rentals, and this 90-day notice period is actually better than anywhere else in the world.
Banks may also offer tenants “Cash for Keys” on a foreclosed property. This involves a cash payout in exchange for earlier departure prior to the end of the lease. It is entirely up to the tenants to take on the offer, although they are not obliged to do so.
Tenants who need to move out on a 90-day notice may consider suing their previous landlord for unreturned deposits, new rental search or application costs, moving expenses and even the difference between the new and old monthly rent. They may do so at a small claims court, and while the awards aren’t really that much, they may be able to recover what is due.
Always Talk to a Foreclosure Defense Attorney
Consult with an attorney and get proper legal advice if the property you are renting has been foreclosed. After all, your rights to the “covenant of quite enjoyment” had been violated and you simply deserve the best deal for diligently complying with the terms of your lease.
