In 2006, the American housing market began a freefall led by inflated home values and a variety of subprime and creative loan options that left many homeowners faced with foreclosure.
Unfortunately, the housing crisis has had a negative impact on renters as well. Many unsuspecting tenants signed a lease, moved into a residence, and faithfully paid their rent each month, only to find out that the home is in foreclosure. In some cases, entire apartment buildings have gone into foreclosure. According to CNN Money, by the end of October 2009, 1 in every 136 homes in the U.S. was in foreclosure.
The tenants are usually completely caught off guard in these instances because the landlord failed to disclose the fact that they had stopped paying the mortgage for fear of the tenant withholding rent.
If a renter finds themselves being served with notice of foreclosure papers or an eviction notice, there are some important things that they need to know in order to protect their rights in this situation.
New Law Provides Protection for Renters in Foreclosed Homes
On May 20, 2009 President Obama signed the Protecting Tenants at Foreclosure Act into law. This legislation, which also covers Section 8 renters, mandates that when a home goes into foreclosure, tenants who have a full lease can continue to occupy the home until the end of the lease period. Those with a month-to-month lease or no lease at all have to be given at least 90 days notice to move. The only way that a person with a full lease can have their lease terminated is if the new owners intend to move in and occupy the home as their primary residence. In that instance the 90 day notice would apply.
This federal law is important because prior to its passage, the foreclosure terminated any lease that had been signed. The Protecting Tenants at Foreclosure Act also states that in cases where the state law provides more protection than the federal law, the state law applies.
Paying Rent When a Home is in Foreclosure
A tenant can reasonably be expected to be angry when they find out that they have been paying rent to a landlord who has been pocketing the money and not paying the mortgage. Their first instinct may be to stop paying rent.
Tenants should seek legal advice regarding the laws in their respective states before withholding rent. In many instances, renters still must continue paying rent to the landlord as long as they are still the rightful owner of the property. In some cases, tenants may be able to pay their rent to the local clerk of courts, who will deposit the money into a special account.
However, renters must be careful to find out who the rightful owner of the property is. There have been cases of landlords collecting rent even after they no longer owned the property. This is why seeking legal advice is so important in this situation. In many areas, Legal Aid has been working diligently to assist renters and homeowners dealing with the foreclosure crisis and they may be able to provide assistance or referrals to other attorneys.
Banks May Offer Renters Money to Move Out Early
As part of the Making Home Affordable program, the U.S. Treasury Department began offering money for homeowners who are losing their property to leave voluntarily. Commonly known as Cash for Keys, this incentive is now being offered to renters of foreclosed properties.
If a renter decides to take a Cash for Keys offer to terminate their lease early, they need to make sure that they have an agreement in writing from the bank and that they live up to their end of the agreement, which usually includes such things as not damaging the property or removing appliances and fixtures that came with the property. The tenant also needs to make sure that the amount being offered is fair so that they are not shortchanged. In some cases, Cash for Keys compensates renters for first and last month’s rent, or about $2,000, whichever is greater.
How to Get a Security Deposit Back
Unfortunately, there may not be much that can be done about getting a security deposit back from the landlord after the home has gone into foreclosure. A tenant’s only alternative may be to sue the landlord in small claims court. While they may successfully win a judgment, actually getting the money may be much more difficult.
When a renter finds out that the home they are living in is being foreclosed on, they enter into a stressful situation full of legal pitfalls. With careful research and proper legal advice, they can avoid being victimized further and receive assistance in staying in their current residence or moving to a new one with as little disruption to their lives as possible.
For more information on individual tenant laws by state, visit the Department of Housing and Urban Development’s website and click on the appropriate state. LawHelp provides free referrals to legal aid programs in local communities.
Alana Tutwiler - Alana Tutwiler is a Contributing Writer for Suite101.com. She has a bachelor's degree in Special Education from the University of North ...
