Should I Still Pay My Rent If My Landlord Is in a Foreclosure?
If you do not pay rent, does that let your landlord off the hook for paying his mortgage? Most certainly not. The reason is because the mortgage is part of an agreement between the lender and the landlord, having nothing to do with the tenant. Likewise, a lease is a contract only between you and the landlord, having nothing to do with the mortgage. You pay the rent; the landlord provides the housing. His being in foreclosure doesn't impact the contract until he loses the property. And that's when you should stop paying your rent; not before.
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What if You Stop Paying
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If you fail to pay the rent, you risk eviction without a valid defense. The landlord will be entitled to send a three-day notice to "Quit or Pay." If you don't pay within the three days, he is entitled to file for a court-ordered eviction. In many states, once that lawsuit has been filed, the landlord no longer has to accept your rent. Even if you try to pay rent after that, he can evict you after he gets a court order. The effects of an eviction are obvious: you lose your home and the eviction appears in publically available court records forever.
Exception
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Some mortgages for property that is purchased for purely investment purposes have a rider, or attachment, that provides for the assignment of rents to the lender if the borrower defaults on the loan. Except in the state of Michigan, where the practice is prohibited, if a default occurs, the lender can require the tenants to make rent payments to it instead of to the landlord. If a lender invokes the rights of the rider, it must notify you in writing. A property that was originally purchased for owner-occupancy will not have this rider, nor will most private mortgages. If you receive a letter instructing you to send your rent to the lender before the property has changed hands, require proof of both the default and existence of the rider.
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Watch for the Title Transfer
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One thing you certainly do not want to do is pay rent to the landlord after he's lost the property. State law in some places requires lenders or owners or both to notify tenants of an impending foreclosure. In some states the foreclosure process requires the lender to record a notice of default on the property title. In others, it requires the filing of a lawsuit. Both actions are public record. If you believe a foreclosure is imminent, check either court or property records, depending on the foreclosure process used in your state. Once the foreclosure sale occurs, the title will formally change hands at the county tax recorder's office. Check the title often to find out when the transfer occurs. After that date, hold your rent until the new landlord contacts you.
What to Do About Your Deposit
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If you live in Oregon, you are in luck when it comes to security deposits and foreclosures. In that state, tenants can apply their security deposits toward the rent once a foreclosure has commenced, so long as they notify the landlord in writing. Elsewhere, all you can do is write your landlord and ask for your deposit back. If he fails to comply, take him to small claims court.
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References
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