Will I Lose My Residence If My Rental House Goes Into Foreclosure?
In the case of a rental property, a foreclosure usually occurs when the landlord misses his mortgage payments. The mortgage lender then takes possession of the property and sells it to cover the landlord's debt. The tenant usually gets caught up in the mess, losing his residence in some cases.
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Before May 2009
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Before May 20, 2009, most renters whose homes were in foreclosure lost their residences. In most states, if the landlord signed his mortgage agreement before he signed his lease agreement, the mortgage had priority over the lease. As such, a foreclosure by the mortgage lender erased the lease agreement. Because most leases lasted a year at most, the mortgage agreement usually predated the lease agreement and the renter had to move out of the property.
Foreclosure Act
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On May 20, 2009, President Obama signed the Protecting Tenants at Foreclosure Act. This allows the lease agreement to survive a foreclosure. As a result, tenants can stay in the rental property until the lease expires. Even if the tenant is on a month-to-month lease, the new owner has to give the tenant a 90 days' notice for eviction. This gives the renter time to look for a new residence.
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If the New Homeowner Wants to Move In
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If the new owner wants to move in to the property, he can evict the tenant even if the lease is still in place. However, he has to give 90 days' notice for the eviction. The tenant can sue the former landlord for breaching the rental agreement in small claims court because he failed to provide a residence for the entire lease term. The tenant may be able to claim moving fees and the difference between the new rent and the old rent.
Cash for Keys
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Lenders often try to get tenants to leave the foreclosed properties to make the properties more attractive to prospective buyers. If the lender has to evict the tenant, it has to pay court costs and the process may take some time. To encourage tenants to vacate the property quickly, the lender sometimes offers a cash payout. The tenant doesn't have to accept this offer.
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References
- Photo Credit home sweet home image by David Dorner from Fotolia.com
