Tenant Rights. Imagine if you will… You’re a renter. That’s right, just like many people in this country, you don’t own your house; you rent it. You hold a very respectable job and are active in the community. You like where you live. The location is good, not too far from shopping and the kid’s school. You rent a nice house with three bedrooms and a yard for the kids to play in. The rent’s a bit high, but you’re making ends meet on a month-to-month basis. Not too much in the way of savings to fall back on in a crisis. Still, life is good. 

 

And then the bottom falls out. You get a knock on the door, late in the evening. Hmmm, you think, who could that be? And just because the hour doesn’t seem right for visitors, you already have a feeling of dread when you open the door. You’re served with an official letter from the bank that your landlord is being foreclosed on. Yup, while you were paying the rent, the landlord wasn’t paying the mortgage. You and your family can’t believe it. You feel betrayed. You talk to the landlord fairly often. In fact, you thought you were on pretty friendly terms. Yet the landlord never said a word to you. No warning at all. How can that be? You’re a good tenant, after all. You pay the rent on time. Keep the yard tidy. You’re even friends with the neighbors. So how could this happen to you? 

 

Or, picture another scenario. That knock on the door late in the evening is the Sheriff, to let you know you are being evicted from the property. The property has already been foreclosed. You and your belongings must be off the premises within 30 days. You will not be allowed back on the property following the specified date and any belongings you leave behind become the new owner’s property. Now you’re family is facing a crisis. A crisis you didn’t create, but you’re in it nonetheless. 

 

Well, just like you, many tenants have been surprised recently to find that they are a party to their landlord’s foreclosure proceeding. For the property owner, your home is an investment. If the property isn’t worth what the owner paid for it or the property owner is having trouble maintaining multiple investment properties, they may be happy to let the bank take the property back in a foreclosure. Whatever the landlord’s circumstance that caused the foreclosure, you’re involved. And yes, the owner may even have taken your money for several months without using it to pay the mortgage. If the bank is foreclosing, as a tenant, you are stuck in the middle of a bad situation. 

 

Tenant families all over the country are being faced with the harsh realities of their landlord’s foreclosure. Although the process in every state can be different, the results are often devastating to renters and their families. In the best of circumstances, the bank or new owner may become your landlord and let you stay in the house. However, often as a renter, you may have a limited time to leave the premises before you are forced to leave through an eviction proceeding. You may not get your security deposit back in a timely manner and may not get that money back at all. You have to find a new place to live -- quickly, within traveling distance of your work place and the schools your children attend. You’ll need to come up with the cash for a new security deposit, and possibly first and last months’ rent payments before you can get a new place. This is not what you expected. You sure don’t deserve it. And it’s not something you ever thought you would have to deal with. Why should you suffer because the landlord didn’t pay his debts? Do you have any rights as a tenant? 

 

What Rights Do Tenants Have? Precious few. Most states govern renters’ rights under the “first in time, first in right” rule. If the lease was signed before the current mortgage, the terms of the lease are considered before the mortgage terms. Alternatively, if the mortgage was signed before the lease, the mortgage prevails. Since most leases are written on a year to year basis, they are signed after the mortgage; so the leases – and tenant – almost always lose out. 

 

Many states are beginning to look into tenants’ rights as the explosion of foreclosures impact so many renters; but there are still very few protections for people who lease their homes. Consider these statistics: According to the Center for Housing Policy, 20% of all foreclosures involve rental properties, and in major urban areas, the percentage is much higher. A NOLO.com article tells us 68% of 2006 foreclosures in Minneapolis were investor owned (rental) properties, and New York Senator Jeff Klein says 50% of foreclosures in New York involved rental properties. Not only are homeowners scrambling to find housing when they lose their homes, but so are hundreds of thousands of renters!

 

Notification: In many states, the bank is required to give public notice prior to a foreclosure sale, which is the last step in the foreclosure process. Often this notice comes in the form of a posting on the property itself.  So, by the time the renter is informed, it’s pretty late in the game. If the owner identified the property as a rental unit when they applied for their mortgage, the bank may have added an Assignment of Rents rider to the loan. This rider gives the bank the right to collect rent directly from the tenant if the owner defaults. In this situation, the tenant would be notified in the case of default so they could redirect their payments. In most states, however, neither the bank nor the landlord is required to tell the tenant when a property is in foreclosure, even if they know this when they sign a new lease. 

 

What Can You Do to Protect Yourself? Unfortunately, not much. Oftentimes, the best the renter can do is bargain for time, avoid eviction, and if you have the stomach for it, sue the owner for damages.

 

Bargain for time: 

Contact the attorney for the bank or new owner and negotiate for more time before you have to move. You may be able to convince the new owner to honor the current lease. For the new owner, it may be better to have a rented house for the balance of the lease. 

There are a few exceptions to this generally grim outlook for renters. Tenants who participate in Section 8 housing (federally funded rental assistance) have some lease protection; and a few states, such as New Jersey and Massachusetts, have implemented laws protecting tenants from eviction as long as they pay their rent as agreed.  

 

Be prepared, the new owner may offer you “Cash for Keys” to incent you to move out quickly – usually in a matter of days – so they can take ownership right away.  Most renters say the cash is not enough to cover the basic costs of moving and the deadline does not give them the time they need to make proper arrangements.  Remember – accepting or declining a Cash for Keys offer is entirely your choice.

 

Avoid eviction:

While dealing with an unplanned move is stressful and upsetting, you want to avoid eviction.  Having an eviction on your record can make finding future housing extremely difficult.  There is no law that prevents a potential landlord from rejecting you as a tenant if you have an eviction on your record.

 

Sue the former owner:

Tenants who live in a “first in time, first in right” state will probably not win by arguing the lease was signed and should be honored; but tenants who learn their home is now owned by a bank, may be able to sue the former owner for damages under the “covenant of quiet enjoyment.” This duty binds the landlord to deliver use of the home for the full term of the lease. If the landlord defaults and loses the property, the landlord is in violation of the covenant and the renter has a basis to sue.

 

A lawsuit of this kind is usually brought in small claims court. The renter can sue for damages brought about by the unexpected relocation, including the cost to move, loss of deposit, realtor fees, and other expenses associated with securing a new place to live. While it may take some time to collect, especially if the former owner is less well off following foreclosure, the judgment will stay on the landlord’s record for many years, and over time, the tenant may be able to collect some if not all of what he or she is owed.