Historically, the rights of residential tenants ended as soon as the foreclosure occurred. In many cases, the tenants did not even know their home was in danger until they were forced to move out without notice by the new owner. Because of the record number of foreclosures in 2007, 2008 and 2009, and because some 40 percent of foreclosed homes were occupied by tenants, both state and federal law changed in mid-2009 to offer those tenants at least some protections in foreclosures. Tenants no longer lose their rights during foreclosure of the rental home.
What protections does the law provide during foreclosure?
A tenant living in a home or apartment that is being foreclosed on must receive notice of the foreclosure action at least 120 days before the final foreclosure date. The notice must contain certain information about tenants’ rights during and after foreclosure. During the foreclosure proceeding, landlord-tenant law still applies. In most cases, the tenant must continue to pay rent to the landlord. In some cases, the loan agreement gives the lender the right to collect rent from the tenants if the landlord misses mortgage payments. Except in rare cases, the only person who has the right to evict the tenant during the foreclosure process is the landlord.
When a property is in foreclosure, the tenant has the right to apply any security deposit or rent prepaid to the landlord against current or future rent. The tenant must notify the landlord in writing when doing this.
What protections does the law provide after foreclosure?
State and federal law require the “forecloser” — the lender that is trying to recover its mortgage loan to the landlord — to give at least 90 days’ notice after the foreclosure is finalized before the tenant can be required to move out. The law provides extra protection to tenants with fixed-term leases – they may finish out the full length of their lease term, unless the new owner after the foreclosure sale plans to live in the home as a primary residence. These protections are in effect until Dec. 31, 2014. After that date, the 90-day notice requirements expire, and state law will provide 60 days’ notice to tenants with fixed-term leases, and 30 days’ notice to other tenants.
In addition to the notice required prior to eviction, tenants are entitled to a notice of new ownership within 30 days after the foreclosure sale date. The notice must contain information about the date of the sale, the new owner’s name and contact information, information about tenants’ rights to notice prior to eviction, and information about where to get legal and other assistance.
Which tenants qualify for the new notice protections after foreclosure?
All tenants qualify for the new protections so long as they were “bona fide” tenants before the date of the foreclosure sale. In order to be “bona fide” tenants, they can’t be the mortgagor (the person who has lost the property to foreclosure) or the child/spouse/parent of the mortgagor. They must have become tenants in an “arm’s-length” transaction. And the rent amount (including housing authority or other government subsidies) must be reasonably close to market rent. Tenants with Section 8 vouchers or living in public housing qualify for the protections, so long as they are “bona-fide” tenants.
Do tenants have to keep paying rent after the foreclosure sale?
Yes. If the new purchaser demands rent, tenants should pay rent. If the new purchaser demands rent, the purchaser becomes a landlord, and will have the duties of a landlord during the remainder of the notice period. Tenants will then have the same rights and responsibilities regarding the property and the landlord that they had previously. The regular provisions of landlord-tenant law will then apply to both sides.
The tenant must pay rent if it is demanded even if the purchaser gives a 90-day notice of eviction at the same time. The forecloser or new owner is required to provide the tenant with a notice of new ownership within 30 days of the sale date; this notice should provide information about where to pay rent, if rent is demanded.
What process must be followed to evict a tenant after a foreclosure sale?
Anyone who wants to evict a tenant from a rental unit must get permission from a court. The new owner of the property after a foreclosure sale cannot change the locks or force a tenant to leave without a court order. Tenants are entitled to get formal notice of any court action. They should get legal advice immediately if they receive court papers, because a hearing will be scheduled very quickly.
A new owner wishing to evict a bona fide tenant will have to show that proper notice was provided before an eviction action can proceed. Improper notice is a defense to a tenant in an eviction proceeding.
What can tenants do if the forecloser tries to force them out of their rented homes in violation of the law?
Reportedly, some purchasers at foreclosure have been pressuring or harassing tenants to move right away, before the end of their required notice periods (90 days or the length of the fixed term lease). The reported misconduct has included changing locks, shutting off utilities, refusing to honor term leases and misrepresenting tenant rights. Tenants should report this improper conduct to the federal Office of the Comptroller of Currency (OCC), which is responsible for regulating most banks. Tenants also should get legal advice and assistance immediately so they can get back into their homes.
The OCC complaint process is online only, at the OCC’s website, https://appsec.helpwithmybank.gov/olcc_form. Note that filing such a complaint is not enough if the tenant wants to protect his or her right to remain in the home. The tenant should get legal advice quickly.
What if the new owner tries to offer the tenant cash to move out early?
So long as the new owner is not misrepresenting the tenants’ rights, it is legal to offer a tenant cash if the tenant will agree to move out before the end of the required notice period. The parties should be careful in negotiating the terms of any “cash for keys” agreement to be sure they are fair. The amount of cash offered should be commensurate with the rights the tenant is being asked to give up. It is advisable for the agreement to be in writing, and tenants may want to seek legal advice in reviewing and before accepting any offer.
Does the new purchaser become the landlord?
Maybe. The purchaser becomes the landlord intentionally by entering into a rental agreement or by accepting rent. The purchaser can also become the landlord by failing to send a notice of termination of tenancy to the residential tenant within 30 days after the date of the purchase. If the purchaser does not demand rent, enter a rental agreement, or send a notice of termination within 30 days of the date of purchase, the purchaser becomes the new landlord.
Who is responsible for maintenance and repair of the rental after the purchase?
Unless the new owner becomes the landlord, the new owner has no responsibility to the tenant for repair and upkeep of the property or for any loss of rental value. The purchaser who does become the landlord is liable only for damage, upkeep and repair after the purchase date, and for any new security deposit the purchaser collected from the tenant after the purchase date.
May the new purchaser ever give less than 90 days’ notice to evict a tenant after foreclosure?
In some circumstances. If the purchaser becomes the new landlord, then the rental agreement applies and the tenant may be evicted for nonpayment of rent or other violation of the agreement as under ordinary landlord-tenant law. However, the landlord cannot give a no-cause notice less than 90 days in advance, and must allow a fixed-term tenant to stay through the length of the term. If the purchaser does not become the landlord, the right to evict the tenant is very limited. If the tenant behaves outrageously, the new purchaser may evict the tenant with 24 hours’ notice. Otherwise, at least 90 days’ notice is required.
What rights does the tenant have if the purchaser does not become a landlord?
In addition to the right to at least 90 days’ notice prior to eviction, the tenant has certain specific rights found in landlord-tenant law. The laws against unlawful ouster and abuse of access, the discrimination protections and the abandoned property protections of landlord-tenant law apply to tenants living in homes after foreclosure, even if the new purchaser does not become a landlord. The attorney fees and prevailing party fees available in landlord-tenant actions also apply in actions between the tenant and the new owner.
When a tenant moves out after foreclosure, what happens to the security deposit or prepaid rent the tenant paid to the former owner?
The tenant does not have the right to make the new owner pay back a security deposit or any prepaid rent that the tenant paid to the former landlord. The tenant may wish to sue the former owner in small claims court to try to get the money back. Note that the former owner may not be able to repay those amounts if he or she is in bad financial straits. This is why the law gives the tenant the right to apply any deposit or rent prepaid against any current or future rent owed the landlord during the pendency of the foreclosure proceeding.
Legal editor: Sybil Hebb, March 2012