Are You Renting Property That Has Gone Into Foreclosure?

For many, it is no surprise that the recent economic downturn has led to a significant increase in foreclosure filings. Not only have homeowners felt the devastating consequences of a foreclosure, but so have the tenants renting these distressed properties. Imagine being informed by your landlord that they've been served with a foreclosure suit. Do you immediately stop paying rent and look for another apartment? Not really. It is important to note that up until the actual auction and sale of the property, you and the landlord still hold the same obligations and responsibilities to one another. Another question arises, though, if the residential property is sold at auction, and NOW, a new owner enters the picture. The real issue that remains - does the new owner have the right to force you out immediately? To the relief of many tenants, recent legislation has answered this question.

Protecting Tenants at Foreclosure Act, which became effective May 20, 2009, states that the new owner of a foreclosed residential property is required to take certain steps before forcing a tenant to leave. Specifically, a new owner must give an existing tenant 90 day notice to vacate the property OR allow the existing tenant to remain in the property until the end of their lease term (whichever is longer). The only exception to this requirement is when the new owner will occupy the home as his or her primary residence. In that case, the remaining lease term does not have to be honored, BUT a new owner must STILL give the existing tenant 90 day notice.

So what does this mean? Practically speaking, the law provides tenants at the very minimum 90 days to look for another place to live, and any threats by a new owner asking them to leave immediately is in direct violation of the law.

It is important to note that only bona-fide tenants are protected, which means:

- The pre-existing tenant can't be the debtor of the mortgage debt that is being foreclosed
- The lease must have been the result of an arms-length transaction (a fair deal)
- The rent can't have been substantially less than fair market rent for the property.

For tenants facing this dilemma, it is important to understand your rights. If you are a tenant and feel that your rights have been violated, seek the advice of an attorney.