Renters and Foreclosure

The sub-prime mortgage industry meltdown is now affecting renters whose landlords have lost their rental properties through foreclosure. The mortgage industry crisis has resulted in millions of foreclosed homes. Most of the occupants are the homeowners themselves, who must find alternate housing with very little notice. They’re being joined by many renters who find, often with no warning, that their rented house or apartment is now owned by a bank, which wants them out in a matter of days. For most of these renters, their options are less than limited.

Renters

Many renters live in smaller buildings, condos, and single-family homes. They’re located in cities and surrounding suburbs, in low-income and upscale neighborhoods. In short, foreclosed homes are everywhere, and they're rented by people with widely varying incomes, including some with "Section 8" vouchers. The typical foreclosed home was usually owner-occupied, but more often it’s owned by investors who were hoping to profit from the rent. During a time, not that long ago, owners counted on rising rents and low interest rates to cover their mortgage payments. Caught between the slump in housing values and the rise of their mortgage interest rates, these owners could not sell or get enough rent to cover their monthly costs. In droves, they lost their investments.

Tenants

Many tenants have no idea that their building has been taken at foreclosure. They continue to pay rent to the former owner, who often pockets the money but is not inclined to maintain the building it no longer owns. In the meantime, the new owners simply refuse to be landlords, never making repairs or even paying utility bills. Because the banks are stuck with increasing numbers of foreclosed properties that they can’t sell, they remain non-landlords for some time, making life impossible for their tenants until those tenants are evicted.

Facing Eviction due to Tenant Foreclosure

Most renters will lose their leases upon foreclosure. The rule in most states is that if the mortgage was recorded before the lease was signed, a foreclosure will wipe out the lease. This rule is known as first in time, first in right. Because most leases last no longer than a year, it's very common for the mortgage to predate the lease and terminate it upon foreclosure.

That doesn't always mean the lease-holding tenants have to leave immediately but are usually given notice of 30 days. And the new owners tend to move quickly to terminate, giving as little notice as is legally possible. Tenants who refuse to leave face an eviction lawsuit, for which they usually have no legal defense. The impact of an eviction on a tenant's ability to find future housing can be devastating. No law prevents a future landlord from automatically rejecting tenants with evictions on their record, even when those tenants were the innocent victims of a foreclosing bank.

Exceptions

There are some exceptions, tenants on Section 8 program will see their leases survive, as will tenants in New Jersey, New Hampshire, the District of Columbia, and, Massachusetts. In these states, new owners cannot evict lease-holding tenants unless the tenants have failed to pay the rent or violated any other important lease term or law. Tenants in other states who live in cities with rent control “just cause” eviction protection may also be protected.

• If you are a Renter or Landlord and are dealing with a Foreclosure Issue, Consult Your Case for Free with a local certified Foreclosure Attorney to see which legal options you have available.