If the House I'm Renting Goes Into Foreclosure, Do I Need to Continue to Pay Rent?
A rental agreement requires the tenant to pay the landlord rent for the duration of the lease. Even if the lease expires, if the tenant stays with the landlord's permission, he must pay rent. There are no exceptions for properties in foreclosure.
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But My Landlord Isn't Paying the Mortgage
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Unless the landlord has to use your rent to pay the mortgage as a condition in your lease, it really doesn't matter what he does with the rent. You aren't paying him rent so he can pay his mortgage: You're paying him rent because it's a condition of your lease and your tenancy. If you don't pay, the landlord is entitled to issue you a three-day notice to "Quit or Pay." This is the first step to your eviction. Unless his foreclosure occurs before your eviction, you're likely to be out on the streets, with an eviction part of your public record.
Exception
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According to Nolo.com, if the mortgage your landlord is in default on has what's known as a "1-4 family rider," which provides for assignment of rents to the lender in the case of default --- except in the state of Michigan --- the lender can require you to pay it instead of the landlord. If this is the case with your landlord's mortgage, the lender is required to give you notice, either by letter or posted notice. If this happens, ask to see a copy of the rider. Your landlord may not have this rider on his mortgage. If, for instance, he took out the loan to live there himself and later moved, a rider of this type isn't a part of his mortgage. A private mortgage also might not have this rider.
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Keep Up With What's Going On
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In certain states, lenders are required to notify tenants about foreclosures --- either when they begin or when they're finalized. In other states, though, this isn't a requirement. A tenant might not find out about a foreclosure until he gets an eviction notice from the new owner. Although you probably have to pay your landlord while he's in foreclosure, you don't want to be paying him after foreclosure. As soon as you think the property might be in foreclosure, check the property title at the county recorder's office. Foreclosure processes often require the lender to record a notice of default, or NOD, on the property. In certain states, if one hasn't been filed yet, you can record your lease on the title. This affords you the right to get a copy of the NOD when and if it's filed; however, it may also result in you being named in the foreclosure, so check state laws first. Also check back periodically to find out if and when the property changes hand. At that point, stop paying rent to your old landlord and contact your new one.
Security Deposits
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Check your state law regarding security deposits. In every state you're entitled to file in small-claims court to get your deposit back if the owner doesn't return it or forward it to the foreclosing lender. However, state laws may provide other recourse. In Oregon, for instance, tenants are allowed, with written notice to their landlord, to apply their security deposit to the rent once they become aware the property is in foreclosure.
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References
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