Foreclosure filings in the U.S. are at the lowest levels in 11 years, according to ATTOM Data Solutions, which curates a property database. Default notices, scheduled auctions and bank repossessions occurred on just 191,824 properties in the third quarter this year — the lowest since the second quarter of 2006, and the fourth quarter in a row to have prerecession foreclosure levels — according to the report.
It’s a far cry from the housing market crisis during the recession, when as many as 10 million families in the U.S. lost their homes to foreclosure.
For renters who have been paying their landlord as usual, the stability of the current housing market may make it a surprise when they find out the owner has missed too many loan payments, and the property they call home is now in foreclosure proceedings.
Regardless of the state of the economy, individual circumstances mean foreclosures still happen across the country, and it can be particularly hard for tenants, who have no control over the foreclosure process and no way to halt proceedings.
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Additionally difficult for you as a tenant is the fact that you’ll likely find that the lender foreclosing on the property or the buyer who purchases the property following foreclosure is not interested keeping on a tenant. “Most of the buyers at trustee sales and foreclosure sales are going to want to occupy the property, or they want to renovate it and sell it, or rent it to a tenant of their choosing,” says Ron Thomas, an attorney specializing in tenant law in Arizona.
Receiving notice of foreclosure on your rental may be a surprise when it comes in the mail, is posted on your door or is handed to you in person, and will certainly be daunting, but you likely have a few options going forward. First, you need to determine what laws you have protecting you as the tenant in foreclosure.
Federal Protections Have Expired
To keep more people from being pushed out of their homes during the housing crisis, the federal government instituted the Protecting Tenants at Foreclosure Act in 2009. The act allowed existing leases with a termination date to be completed and tenants on month-to-month or unspecified leases to be given at least 90-day notices to vacate the property.
While the act kept tenants from having to scramble to find a new housing situation with little notice, it expired in 2014 and no replacement has been put in place at the federal level. State laws now dictate tenant protections. Depending on where you live, you may see your yearlong lease last until the end date specified in your contract, or you may get as few as three days to move out.
State and Local Protections Vary
States like California, New York and Illinois require a bona fide lease — or written lease with a fixed term — to be honored, though there are exceptions, including when the buyer intends to live in the residence.
Some states carry through the fixed-term protections previously existing in the PTFA. New York law, for example, allows tenants to remain at the property until the end of their lease or for 90 days after foreclosure, whichever is longer. An exception occurs when a buyer purchases the foreclosure property with the intent to live there, in which case an eviction with 90-day notice is allowed.
But without PTFA, that’s not the case for all tenants. “In Arizona we don’t have those sorts of protections, it’s very limited,” Thomas says, adding that the original landlord is required to give five days’ notice to the tenant prior to the date of foreclosure or auction. Once the property changes hands, the new owner is only required to give another five days’ notice for the tenant to vacate before eviction proceedings begin in court.
In Washington, tenants are given a longer reprieve, but the original lease is still null and void at the point of foreclosure. “Tenants should either receive a 60-day notice to vacate, or enter into a new rental agreement with the landlord,” says Daniel Pizarro, a Washington attorney who specializes in foreclosures and property redemption, as well as landlord-tenant disputes.
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Whether you’ve only heard distant rumblings of a landlord’s debt problems or you’ve received official notice of foreclosure proceedings, as a tenant you must be proactive to ensure your rights are honored and you don’t find yourself out in the cold. Here are your options:
Prior to foreclosure. As soon as you receive notice that the property you live in is being foreclosed, reach out to an attorney with experience working on behalf of tenants. It’s important to be informed of your legal rights as it pertains to your state or city. An attorney can also contact the lender to determine if a notice to vacate is likely upon foreclosure, or if it’s possible for you to stay on as a tenant.
Keep in mind that you must continue paying rent prior to foreclosure. A notice of foreclosure proceedings is not the same as a transfer of ownership. Until the foreclosure is complete, you should continue paying your rent as usual.
“Not paying rent might still cause a new landlord to seek an eviction, so it is a risky move that can cause problems,” Pizarro says.
Move out upon foreclosure. Receiving notice to vacate is an inconvenience at best, but regardless of the time period you have based on state or municipal laws, there are a couple reprieves.
As a vacating tenant, you can still expect to receive your security deposit. Various state laws may place the burden of payment of the security deposit on the previous landlord or on the new owner, even if the previous landlord did not pass on the security deposit amount at the point of foreclosure.
In that time period you’ve been given to move out after the transfer of ownership, you’re also not expected to pay rent, as “there is no contract between the new owner and the existing tenants,” Thomas says.
While many states give tenants as much as 30, 60 or 90 days to vacate the property, an eager buyer may be willing to sweeten the deal for you if you’re able to move out sooner, which Pizarro notes is often referred to as a cash for keys agreement. Any such agreement is up to the tenant’s discretion, however — no landlord can force you to vacate early in exchange for money or other assistance, Pizarro says.
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Stay with a valid lease. If you live in a state where your fixed-term lease remains valid through foreclosure, the new property owner must abide by that lease as well. That means the new landlord “can’t raise rents in the middle of the lease,” says Nat Kunes, senior vice president of product at AppFolio, a full-suite property management software company. An increase in rent, more strict requirements for subletting or expectations for your move-out date are only valid if you agree to it in a new lease.
Even where your lease is no longer valid, not all buyers want to lose a tenant and some are willing to draft a short-term lease to make your move simpler. “That gives the tenants an incentive to keep the property in good condition and it minimizes conflict, and the new owner might even receive a little bit of income during the transition,” Thomas says.
Of course, the decision to keep tenants on with a new lease is up to the new owner. In the current real estate market, many buyers of homes that have been foreclosed on are looking to personally occupy the property, rather than keep a tenant for very long. As the tenant may decline a cash for keys offer to move out prior to the state-mandated time limit, a new owner can also decline a tenant’s offer for a new lease. Be prepared for all possible scenarios once you receive the notice of foreclosure proceedings.
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When Your Landlord Is Facing Foreclosure: Options for Tenants originally appeared on usnews.com
