Thread: Foreclosures of Rental Property and Tenant Rights.

I've run across a number of posts referring to this particular situation and similar types of questions.

So, if I may post a rather long article I wrote to help answer some of these questions, it may help some of you that are dealing with a foreclosure property and/or have to deal with tenants of the foreclosure.

Hope this helps:

Your residential lease agreement is in serious jeopardy if your property is foreclosed on.

Let me tell you, that it's ugly- and this goes for all parties involved: The renter, the owner and the lending institution.

Clearly, if you are the owner and you are being foreclosed upon, your finances aren't good. Your FICO score is going to be decimated and the opportunities of being able to purchase a new house any time in the next seven years is highly unlikely.

But the spectacular news doesn't cease there.

If you are a renter with a residential lease agreement, guess what? For the most part, the lending institution doesn't give a darn and it can (and 99% of the time) will make you leave- and you won't even know it's coming.. Additionally, it matters not if you have always paid on time with your rent payments and are in the midst of your residential lease agreement contract! The law enforcement could arrive and make you leave way before you are prepared!

Unless you are going through your property owner's mail, how would you ever learn the home is being foreclosed on? You wouldn't. And that can hurt, but the hurt doesn't stop there- although the owner has been cashing your timely rent monies, he hasn't been paying the lending institution and it is (for better or worse) legally okay to do so. Morality is another thing altogether.

And, hold on to your seat, most of the time- the owner is under no obligation to return your deposit to you! Even if it used to say so in your residential lease agreement.

In 2008 in California, the state with the highest rate of foreclosures and showing five million current tenants looked at almost 1/3 of their 268,000 foreclosures adversely effect renters in rental houses all because the lending institutions are unwilling to act as property managers and keep intact the residential lease agreement!

Yes, 1/3 of the foreclosures in California wiped out tens of 1000's of residential lease agreements instantly! And that is just in my state!

Lending institutions are awful landlords- often, if they can get rid of a house at a massive discount, they will. So, how can you assume they will know how to actually manage a property!?

The larger banks just don't have the resources or experience to be property managers. If you are a renter, you will be considered blessed if they even work with you on your moving out of their new building and into wherever you're going to be living.

Usually, all the lending institution has to do is place an eviction notice on the house door and address it to the property owner and "all others in possession".

Almost twenty percent of houses in the country that are close to being in pre-foreclosure are rental houses.

When the court orders the law enforcement to leave an eviction notice, it does not become the law enforcement's job for determining who is living at the house.

Right now, only Fannie Mae and Freddie Mac, have rules in place to keep renting to the current tenants. In January, they hired landlords to communicate with the current tenants and draw up new leases for them at market rental rates.

According to some lending institutions, they are making the push to work with the current tenants, providing them with "adequate notice" to find alternative places to live. Other lending institutions don't mention the situation at all.

Although lending institutions should follow the rules of lenders Fannie and Freddie, as of now, there is no law requiring them to do so.

Most California cities make it a requirement to new owners to give tenants 30- sixty days to leave.

In Los Angeles, local laws do not allow the owners of most houses from evicting without "just cause" which is at least something positive. (Missed payments is one example of "just cause".) But outside California, there are only 6 other states that will give any form of renter protection.

Regrettably, even these laws are not effective. Why? Mostly because banks are stuck with never before seen numbers of foreclosures and don't have the resources to handle with it. It would be difficult to say that they are not aware of these laws, but whether that is accurate or they are just ignoring them, they are punishing current tenants who have done nothing wrong and are still living out their existing residential lease agreement.

Most of these banks are trying to get current tenants to vacate without even giving them the legal notices to do so. What you have to know as a renter if you are put into this circumstances is that you are under no legal obligation to vacate just because the lending institution or new property owner asks you to do so.

So, with all of this uplifting news, what is the primary way to protect yourself as a tenant with a residential lease agreement at a property in foreclosure?

Learn your rights as a renter. A terrific treasure is the Housing and Urban Development location in your state. You can search for them on the web or just go to your nearest courthouse to find out what the proper method is for your state.

1. Investigate to see if your city has set up any help-lines or hot-lines for renters put in these crummy circumstances. More and more of them are popping up.
2. Don't leave just because someone asks you to. A legal written notice is required. The length of time mandatory differs.
3. Be aware of the warning signals: Persistent letters showing up to your address made out to the property owner (particularly from banks and or the city). You are not allowed to open them, but if they start showing up and hadn't before, you can bet that the property owner is backed up on payments.
4. If worse comes to worse and you learn who the creditor is, you can try to wheel and deal yourself into a owner relationship with them. It's a long-shot but worth a try.

I hope this has provided you with enough experience to be ready should you find yourself being thrown out through a foreclosure.

Agents, I hope this helps shed some light on an oft-posted subject.