Foreclosure: What It Means for the Renter
Living in a single family home or condo with none of the financial responsibility of a mortgage is a great move for most renters. Benefits like a yard, a garage or custom home features can be great incentives for some to rent a home over an apartment unit. But the past year’s less-than-impressive economy put home rental risks in the spotlight. Many tenants of rental homes or condos got a shock when they found out they were evicted with little time to move out and find a new place. An even bigger shock came when they discovered they had little recourse and few rights to solve the problem.
The Owner’s Responsibility in a Foreclosure
According to Janet Portman, attorney and managing editor of Nolo, a legal resources company, the owner of the home must honor his or her responsibilities to the renter to provide adequate housing.
“Legally, until the owner no longer owns the property, [he or she] has the obligation that every landlord has to honor the lease or rental agreement,” says Portman.
But many landlords and owners may not keep up with maintenance responsibilities once they learn the house will go into foreclosure.
“What you’re seeing [are] owners who have very little incentive to fix the roof or maintain the properties because they know they’re losing them,” says Portman. “There’s the legal obligation, and the reality is that many owners simply are not taking care of business because they figure they’re going to lose it soon anyway and why bother.”
The problem in some foreclosure situations is that the owner does not notify his or her tenant. When the bank in ownership of the home decides to sell the home, the renter will often find an eviction notice saying he or she needs to be out of the home within days or weeks. Otherwise, the bank becomes the new owner and may or may not hire a property management company to handle the tenant’s issues.
The Renter’s Rights in a Foreclosure
In a foreclosure situation, renters have few rights, unfortunately.
“If you signed your lease after the mortgage was recorded and that mortgage gets foreclosed upon, you lose your lease,” says Portman.
According to Portman, the exception to this general rule is those who have Section 8 housing and those who have rent control protection.
Tenants who rent private housing using Section 8 vouchers have an addition to their lease that states the lease term cannot be terminated unless there are obvious misbehaviors such as not paying rent, breaking the law or not taking proper care of the unit.
Many of those with rent control have leases with just-cause eviction protection. This means they cannot be forced to leave by the owner or the bank after foreclosure. The exception is if the renter has done something to warrant an eviction, just like those in Section 8 housing. A change in ownership due to a foreclosure is not a listed reason on most justifications for removing a tenant from a rent-controlled property.
In addition, renters who were in place before the mortgage of the current owner was signed also have rights.
 “If the lease pre-dates the recording of the mortgage – in other words, if [the renter] was on the scene with that landlord before the landlord put up the property as collateral for a loan, and he defaults on the loan, then those [renters] survive,” says Portman.
However, it is possible that renters in this situation could have a clause in the lease taking away the right to remain in the property.
What You Can Do In Future Leases to Protect Yourself
Before you sign your next lease from a private-property owner, there are strategies you can employ to make sure you don’t end up temporarily homeless in a foreclosure situation.
 “Your landlord’s going to check your credit … if they have any sense they’re going to do some pretty thorough screening before they let you in,” says Portman. “There is absolutely no reason why you can’t do some of the same.”
 When discussing the lease with the owner, feel free to mention that you want assurance that you will not have to leave due to a foreclosure. You may ask the owner which bank owns the mortgage and ask for confirmation directly from the bank that the property owner is current on their payments.
 In addition, you can ask for a clause in the lease that states the property owner will reimburse you for any moving costs incurred when forced to leave the property because of foreclosure.
 “Somebody who’s current [on their mortgage] is not going to have a problem [giving out mortgage information],” says Portman. “Someone who is on the edge is going to have a problem and if you find someone who, in a loose market, is refusing to give you that information, [it’s] a red flag because it tells you that they are close to soon having trouble.”
Renters’ rights vary from state to state. For a more comprehensive listing of each state’s laws pertaining to renters, select a state on the U.S. Department of Housing and Urban Development’s site. Or, check out Nolo.com’s list of Landlord-Tenant statutes listed by state.
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