Tenants have protections during and after judicial and non-judicial foreclosure of a rental home. The Protecting Tenants at Foreclosure Act of 2009 was restored and became effective on June 23, 2018. The law protects tenants from immediate eviction by persons or entities that become owners of residential property through the judicial or non-judicial process, and extends additional protections for tenants with U.S. Department of Housing and Urban Development Section 8 vouchers.
What protections does the law provide tenants during foreclosure of the rental home?
Notice of pending foreclosure action
In non-judicial foreclosure proceedings, state law requires that a tenant living in a home or apartment that is being foreclosed be notified at least 120 days before the foreclosure sale date. ORS 86.774 (1)(a). The notice must contain certain information about tenants' rights during and after foreclosure. ORS 86.771. There is no similar specific notice requirement for tenants regarding a judicial foreclosure action; however, 28 days' notice of a judicial foreclosure sale must be provided to any person with an interest in the property. ORS 18.924.
Landlord-tenant law applies during the foreclosure
During any foreclosure proceeding, landlord-tenant law still applies. The tenant must continue to pay rent, in most cases to the original landlord. In some cases, the home loan agreement gives the lender the right to collect rent from the tenants if the landlord misses mortgage payments.
Special rules on security deposits and prepaid rent
When a property is in foreclosure, the tenant has the right to apply any security deposit or prepaid rent towards current or future rent. ORS 90.367 (1). The tenant must notify the landlord in writing when doing this. If the landlord later provides written evidence that the property is no longer in foreclosure, the landlord may require restoration of the security deposit or prepaid rent after providing the tenant with at least two months' notice. ORS 90.367 (5).
Special rules on early termination of a fixed term lease:
If a rental property is in foreclosure, a tenant with a fixed-term tenancy may give 60 days' notice of termination without having to pay a fee for breaking the lease early. If the landlord does not provide evidence that the property is not in foreclosure within 30 days after receiving this notice, the lease is terminated after 60 days. ORS 90.367 (6).
What protections does the law provide after foreclosure?
Notice of new ownership after foreclosure sale
Notice of new ownership after a nonjudicial foreclosure sale must be provided to any tenants within 30 days after any foreclosure sale date. ORS 86.782 (5). The notice must contain information about tenants' rights to notice prior to eviction and information about where to get legal and other assistance. The notice required after a judicial foreclosure sale does not contain information specific to tenants.
Notice required prior to eviction by the new owner
The Protecting Tenants at Foreclosure Act of 2009 requires the new owner to give at least 90 days' written notice before a bona fide tenant can be required to move out. The law provides extra protection to bona fide 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 apply to both judicial and nonjudicial foreclosures. State law continues to provide 60 days' notice to tenants with fixed-term leases and 30 days' notice to other tenants in nonjudicial foreclosure proceedings.
Which tenants qualify for protections after foreclosure?
Tenants qualify for the notice and eviction 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 lost the property to foreclosure) or the child/spouse/parent of the mortgagor. They must have become tenants in an "arm's-length" transaction. The lease or tenancy may not require rent that is substantially lower than fair market rent, or reduced or subsidized due to a Federal, State, or local subsidy. The laws protecting tenants also do not cover tenants with a fraudulent lease or those who enter into lease agreements after a foreclosure sale.
Do tenants have to keep paying rent after the foreclosure sale?
Yes. If the new purchaser demands rent, tenants should pay rent. If this occurs, the purchaser becomes a landlord and will have the duties of a landlord during the remainder of the notice period. The regular provisions of landlord-tenant law will then apply to both sides. ORS 86.782 (9)(a)(A).
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 purchaser 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. Newly enacted SB 608 allows a purchaser of a foreclosed rental property to terminate a month-to-month tenancy that is over one year old, or a fixed-term tenancy that is expiring after one year. Tenants are entitled to get formal notice of any court action against them. 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 to the tenants. Improper notice is a defense to a tenant in an eviction proceeding.
The new owner of the property after a foreclosure sale cannot change the locks or force a tenant to leave without a court order.
What can tenants do if the new owner does not follow the law?
If a new owner after a foreclosure sale attempts to evict a tenant, change locks, or shut off utilities without following the law, tenants should get legal advice immediately. Tenants may also report improper conduct by banks or servicers to the federal Office of the Comptroller of Currency (OCC). The OCC complaint process is online only, at the OCC's website, https://www.helpwithmybank.gov/complaints/
. However, filing 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 offers the tenant cash to move out before the protected time period?
So long as the new owner is not misrepresenting the tenants' rights, it is legal to offer a tenant cash in exchange for the tenant agreeing to move out before the expiration of any 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 before accepting any offer.
Does the new owner become the landlord?
Sometimes. The new owner becomes the landlord intentionally by entering into a rental agreement or by accepting rent. ORS 86.782 (9)(a). After a nonjudicial foreclosure proceeding, the new owner 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. ORS 86.782 (9)(a)(C).
Who is responsible for maintenance and rsepair of the rental after the purchase?
Unless the new owner accepts rent or otherwise 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 new owner after a nonjudicial foreclosure sale who does become the landlord is liable only for damage, upkeep and repair after the purchase date, and for any new security deposit the new owner 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. If the tenant behaves outrageously, the new purchaser may evict the tenant with 24 hours' notice. Otherwise, the new landlord must give a no-cause notice of at least 90 days to a month-to-month tenant, and must allow a fixed-term tenant to stay through the length of the term.
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. ORS 86.782 (10)(a)(B). The tenant may wish to sue the former owner in small claims court to try to get the money back; however, the former owner may not be able to repay those amounts if he or she is in bad financial straits. For this reason, ORS 90.367 gives a tenant the right to apply any deposit or rent prepaid against any current or future rent owed to the landlord while the foreclosure proceeding is still pending.
Legal editor: Timothy Murphy, April 2019