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Tenants of foreclosed properties have rights

September 13, 2009|Martin Eichner

Question: After an exhaustive search for a single-family home to rent for my family, I thought I had found the ideal property, so I happily signed a one-year lease. Then when I showed up at the house on move-in day, I discovered a notice of default taped to the front door.

I can't endure another move so soon if the landlord loses this property to foreclosure. Can I cancel the lease without penalty?

Answer: Unfortunately, renters are often innocent victims of the mortgage foreclosure crisis. Despite laws requiring otherwise, owners facing foreclosure are not likely to maintain rental properties and often use the tenant's security deposit on mortgage payments, leaving nothing to refund to the tenant. In some cases, unscrupulous people who no longer own the property -- or never owned it -- try to collect rent from unsuspecting tenants.

The notice of default taped to your door is the first formal step toward foreclosure. The owner has 90 days to bring the mortgage current or negotiate some other arrangement with the lender. The law does not require that the tenant be served with the notice, so in a way you are lucky to be aware of it.

The next step in the foreclosure process is the trustee sale, at least 20 days after the initial 90-day period has expired. The owner loses title to the property at the trustee sale.

Some safeguards for tenants were enacted in a recent federal statute, but they apply only at the trustee sale stage, and only to single-family residences and apartment buildings with less than four units.

Under the safeguards, you are required to be given notice of the sale date, and if the owner loses possession to the lender or a new purchaser, this is what happens: If you are a month-to-month tenant, you are entitled to 90 days' notice to vacate. If you have a valid lease, the new owner must honor the lease until it expires -- unless that new owner intends to personally occupy the property, in which case the lease is canceled but you are still entitled to 90 days' notice.

If you live in a rent-control jurisdiction that requires "just cause for eviction," your tenancy is not terminated by the trustee sale, regardless of whether you rent month-to-month or have a lease.

If the property is sold, the bank or other new owner might offer "cash for keys" -- some money in exchange for your agreement to vacate voluntarily.

While you remain in the property, the owner has the same obligations as any other landlord.

All requirements of providing habitable premises continue to apply, and the owner must maintain the utilities.

-- Martin Eichner, Project Sentinel

Eichner is director of Housing Counseling Programs for the Sunnyvale, Calif.-based mediation service. To submit a question, go to

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