You’ve been paying your rent faithfully, but somehow your landlord never quite gets around to making necessary repairs. You’re ready to escalate the problem with possible legal action, when a knock arrives at the door. You’ve been served a notice of foreclosure.
All this time you have been paying rent to a landlord who is not the landlord anymore. What are your rights as a tenant in a foreclosed property?
Prior to President Obama signing the "Protecting Tenants at Foreclosure Act of 2009," most tenants lost their lease and had to vacate the premises quickly. When that law went into effect, tenants could stay until the end of the lease, or for 90 days if they were month to month tenants. The exception was if the property was purchased by a buyer who intended to live on the premises, all tenants were then given 90 days to vacate. This federal law expired in 2014, but many states enacted laws that are still in effect and expanded the tenant’s rights. These laws apply to Section 8 tenants as well.
If the new owner intends to live in the property, the tenant has to vacate. The tenant is not responsible for any penalties for breaking the lease, as it happened due to foreclosure. The tenant can look into suing the former landlord in small claims court, for causing the hardship of moving before the end of the lease. A landlord who defaults on a mortgage sets the action in motion which results in depriving the tenant of the “right to quiet enjoyment.” Bear in mind that the former landlord probably does not have an abundance of cash. However, a persistent tenant can probably collect the fees for a new security deposit, background check, application fees, and the difference, if any, between the cost of the old rental and a comparative new one.
Tenants who occupy on a month to month basis do not have much recourse, as they are in the same situation as before the foreclosure, with no lease.
For the tenant with a lease occupying a foreclosed property that is bought by an investor or a bank, there is a bit more leeway with staying until the end of the lease. Some landlords may be anxious to get the tenant to leave, because they believe that the property will be easier to sell when empty. They may offer incentives, such as “cash for keys.” Sometimes it is to a bank’s or investor’s advantage to have the property occupied when showing it to potential buyers.