:egal Line: Help! My Landlord is in Foreclosure!
May 16, 2011

The recent mortgage industry crisis has resulted in millions of foreclosed homes. While the homeowners inevitably suffer as a result, so do many tenants who are renting these homes. Prior to May 20, 2009, most tenants would lose their leases upon foreclosure and would be stuck scrambling to find other housing. On May 20, 2009, however, President Barack Obama signed the Helping Families Save Their Homes Act of 2009, which includes the Protecting Tenants at Foreclosure Act (“Act”), legislation aimed at protecting the interests of bona fide tenants living in homes subject to foreclosure. The Act applies to any foreclosure on a federally-related mortgage loan or on any dwelling or any residential property. Thus, if you are a bona fide tenant leasing a residence, you will have certain rights under the Act.

A lease or tenancy is “bona fide” if:

1. The mortgagor or the child, spouse or parent of the mortgagor is not the tenant

2. The lease or tenancy was the result of an arms-length transaction

3. The lease or tenancy requires receipt of rent that is not substantially less than fair market rent for the property or the unit’s rent is reduced or subsidized due to a federal, state or local subsidy

Once a tenant receives a notice of foreclosure with respect to the property they are renting, they should be aware of their rights under the Act. The successor in interest to the property pursuant to the foreclosure (i.e. the new owner) must honor an existing lease on the property. The Act allows a tenant to remain in the house until the expiration of the lease term. The only exception to this is if the successor in interest plans to occupy the house as a primary residence or plans to sell the house to a purchaser who intends to occupy the property as a primary residence. In such event, the new owner must provide the tenant with at least 90 days notice to vacate the property. Tenants should be aware, however, that they must continue to abide by the lease terms or risk being evicted for breaching the lease.

If the lease has expired, or will expire in less than 90 days once the new owner takes title to the property, the new owner must still give 90 days notice to vacate to the tenant. Thus, in this situation, the tenant is permitted to stay on the property past the expiration of the lease, perhaps giving the tenant more time to look for other housing.

If there is no lease in place, and the tenant is a month-to-month tenant, the new owner is still required to provide 90 days notice to the tenant to vacate the property. This actually benefits the month-to-month tenant, because under normal circumstances a month-to-month tenancy can be terminated with only 30 days notice.

Upon receiving a notice of foreclosure, tenants may also wonder to whom they should make their rent payments. The tenant should immediately contact the responsible party (i.e., the person who sent the foreclosure notice to the tenant) to ensure their rent payments are made to the proper person. Tenants must continue to pay their rent and abide by all other lease terms.

Thus, tenants should know that a notice of foreclosure is not an eviction notice. In fact, the new legislation, which expires at the end of 2014, gives bona fide tenants who receive a notice of foreclosure perhaps more time than before to find alternate housing.

This article was written by Kelly J. Jackson, an attorney with Rudolph, Fine, Porter & Johnson, LLP in Evansville, Indiana. For additional information, you may contact Kelly at (812) 422-9444 (e-mail: kjj@rfpj.com). Her practice areas include corporate and business law, health care law, real estate law and title insurance.

This article is intended solely as an information source and its contents should not be construed as legal advice. Readers should not act upon the information presented without professional counsel.