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Tenants Rights & Foreclosure

Lots of un-sold homes dump into the rental pool as property owners struggle to make mortgage payments on vacant houses that didn't sell.

Many investors in our area have seen their cash flow eaten up with higher property taxes and insurance costs. These days if you can break-even on a rental, you're doing pretty good.

All too frequently I see the same name several times on the Lis Pendens list

- a sure sign that an investor is going down.

I've gotten used to that but what bothers me is that the tenants have little or no rights - all too often I encounter a tenant that has been paying rent but the property owner has not paid the mortgage payments. Fortunately, in this state, the occupant of a property is included in the service list. Most of the time, the serving of the summons is enough to send a tenant scrambling to move out.

What about tenants shopping for a home to rent?

I tried to put myself in the position of a tenant looking for a rental and thought of a couple of ways a tenant can avoid being caught in the crossfire of a foreclosure:

•1. Confirm there is equity in the property which is easily done via the public records or a Realtor friend. The thought being that the odds are that properties with equity are less likely to be foreclosed.

•2. Include a clause something to the effect that if the tenant is forced to move due to the Landlord not paying mortgage payments (or taxes), then the Landlord may be sued for the Tenant's moving expenses and damages. Such an agreement, if written correctly, would (should?) probably hold up in small claims court.

That's as far as I got. Not really sure how to protect the tenant but apparently there is nothing criminal about a Landlord that doesn't pay the mortgage payments while collecting rent (although most mortgages have a clause where the borrower is supposed to turn over all rents to the mortgagee)

Any input from Property Managers out there who have included language to protect tenant rights in rental agreements or leases?

Posted by Wendy Smith on 05/28/2008 12:33 PM

Comments (18)

foreclosure, behind in payments, mortgage default, tenant

This post has been included in Florida Information Pinellas County, FL Information Clearwater, FL Information

18 Comments on Tenants Rights & Foreclosure

MAY

2008

It is very sad when tenants have been paying their rent on time and they get squeezed out because the mortgage has not been paid by the seller.

JUN

2008

Hello Wendy,
nice to see you, btw renters here are growing, reason? foreclosures, great information you provided as always :P
Ray Saenz

JUL

2008

Ray,

Rentals are growing here in Ohio as well.

Christina

JUL

2008

I am in a situation where im renting a brand new townhouse. the builder was unable to sell, so they rented the properties out. I pay every month on time. I got a notice stating the home was in default. I contacted the builder and they acted as if they were unaware the home was going into foreclosure. They called me back later that day and said the owner is letting the home go into foreclosure. They advised me they would place me in another unit. I continued to pay rent. Weeks later the home they were going to put me in is going into foreclosure as well. I talked to a few other tenants in the community and he is letting 15 townhomes go into foreclosure yet he is still demanding rent from families. Now I must look for a place to go. My fiancee is going to Afganistan and I need to move before he leaves!! Im frustrated and I feel cheated. I dont feel I am protected>..... help!! Please

JUL

2008

Marie - it really boils my blood when I hear stories like yours. There isn't much you can do - in Florida, anyhow. Maybe at best file a civil suit, small claims court maybe but I suspect the builder would just cry poor-mouth and you would be out all your filing fees and court costs.

Maybe you should just stop paying rent. What's he going to do? Evict you?

SEP

2008

I live in a Section-8 3 bedroom duplex. I recently found out through my neighbor on the same property that the owner has not paid the mortgage for the last couple of months . Myself and the neighbor has made several attempts to contact the landlord regarding his mail that came to neighbors house. He has not returned any calls over the last 2 weeks. I was just wondering what do i do in this situation. Please help, I do not want to lose my Section-8. Thank you

DEC

I moved into a house almost a year ago on a possible rent to own basis...I was looking to purchase in about 2 years. 3 weeks after moving in the landlord tried to push me to purchase and then told me home was in foreclosure. My realtor told me to stop paying rent, lol.

So, it just went to auction but did not sell so now the property is bankowned. From what I have found so far, tenants have rights and now they have to file an order for entry and to evict me since I was not named in the forclosure suit. I guess this will happen sometime between 30-90 days, from what I have found. If anyone has any other info about IL, would be appreciated. I am a single mom and I'd really like my son to finish his school year before we have to move.

JAN

You bought time by not being on the service list, usually tenants are on the service list - Unnamed Tenant or Unknown Tenant - far too many times the service is how the tenant finds out the landlord is in default. There are so many rentals avaiable now - the rental market is saturated with available units. What state are you in that it takes so long to evict?

JAN

I also rent a house that I got foreclosure papers on in November! I rent from a real estate co. that I pay always on time or even a month in advance. The owner lives in Canada and has not paid mortgage since July for 7 months. I had already paid rent till Jan 1 09 and rental co told me not to pay until they found out what was going on. Well now association dues have not been paid and rental co. wants me to pay rent! They even told me that owner was taken off of direct deposit since they violated the terms of their contract by not paying mortgage. I told them to take it out of my deposit which is 2 months rent and a pet deposit and they told me they could not! Can they collect rent on a home in foreclosure? I have went to courthouse and all they could do was give me a tenent/landlord handbook that says nothing to help! I want to stay and at least finish the next 10 months of my lease! The rental co told me the only option was to move but they had nothing for me but will not refund my deposit while I am still here. I got ahold of their mortgage co and was told they do no negotiating with tenents and would only deal with a attorney. So I talked to attorney and was told they could negotiate a contract with mortgage co to try to finish my lease or at least get to end of kids school but would cost me several thousands of dollars. There is already 9 out of 32 home in forecloseure on my street and half of them have been empty for over a year. I AM WILLING TO PAY RENT to someone BUT WHO or am I out of luck! I can't buy now so short sale from bank is of question. What about my deposit can the rental co. hold it? It seems that no matter what I do I will be out money and time. I cant even sue because the owners are out of country and are will just fill bankrupcy! There are not very many rentals on market either and I am even willing to pay association fees! WHAT CAN I DO? PLEASE HELP!

I was reading an outside blog earlier this eveining where the author stated that some mortgage companies are working with tenants that are in posession at the time of foreclosure auction to stay in the home and pay rent to the mortgage company (it makes sense) but I haven't seen any such thing and I can only imagine it's a roll of the dice (for a tenant) to see if the lender will evict or work with a tenant. the sad reality is that tenants just don't have many rights in this respect - it's referred to as predatory renting: landlords that collect rent, don't pay their mortgage without any regard to the tenant.

FEB

Wendy:

All seem to be similar situations, and I too feel the same sense of helplessness like the rest. Please point me in the correct direction.

I have been living in a condo for approx. 4 mo. recently I recieved a letter from Wells Fargo addressed to my landlord stating the following:

"You are now in default on the credit obligation. You have the right to correct this default until Feb. 26, 2009. Default amount is: $2,652.61

If you do not correct your default by this date, we may accelerate your credit obligation and excercise rights and remedies against you incluiding initiating a foreclosure action or procedure to sell the real estate that secures your credit obligation."

Now here is the jist of it, in the lease agreement that was drawn up the landlord and I BOTH intialed next to this clause:

SECTION XV (A)(1), TENANTS REMEDIES of the lease agreement "If Landlord has defaulted under the Lease and if Tenant has given Landlord a written notice describing the default and Tenant's intention to withhold rent if the default is not corrected within 7 days, Tenant may withhold an amount of of rent equal to the loss in rental value caused by the default."

Same situation with all the others who have wrote you, I have been a good tenant, quiet, clean, have good credit, and pay either on time or days before. I sent a letter to the landlord via Certified Mail doing exactly what that section of the lease agreement says of giving them written notice of the default.

He ended up calling me. He answered the following questions:

1. Are you in default? -yes

2. Do you plan on curing the default? -Nope, we have no interst in curing the default

3. Will I get my security deposit back? -yes, as long as you haven't trashed the place

4. Do you foresee me being able to stay the lease term? If no, when do you anticipate me moving out? -"Oh yeah, you'll be able to stay teh entire time,...it takes at least 12-18 months for this stuff to process.

(The mood of the conversation that I recieved from him was, very laid back, acted like this wasn't any big deal, no sweat.) <---which in turn made me feel much more nervous.

I guess here is my question, seeing the info that I have been able to provide you here, should I begin to with hold rent as stated in the lease agreement?

Secondly, if I am going to do that how much access do they (the landlord) have to my credit, and how weary should I be to prevent this somehow effecting my credit score? Do they have access to do that? Please remember that they are an individual (husband and wife whom are real estate agents)

Should I seek an attorney or just anticipate moving out prior to the lease expiring, and whatever months rent I withhould, to uses as compansation for the security deposit ( one months rent)?

Please help me!

FEB

that's great that you have a TENANTS REMEDIES clause in your lease. I'm not an attorney but I would think that you have a legal right to with hold rent. It's looks like you would be in for a hassle though. Very few property owners like to have a tenant that doesn't pay rent - regardless of whether or not they are making mortgage payments.

I think the guy is wrong about the process taking 12 months - I have one that I think the attorney lost the file and it's over a year old but most take only half that long. The landlord should have the property on the market for sale - whether he wants a deed in lieu or short sale - the propeorty has to be on them arket. Do you want to live with your place being shown & all that hassle?

How long left on your lease?

APR

I have been living in a house for the past 3 years and I have learned that the house I am in will be foreclosed on the 10th of this month the property mangement company cannot reach the owner. My question is should I still pay the property management company the rent for this month. They say that I am suppose to.

Am I obligated to still pay rent or should I use this money to move to my next house?

APR

I want to know my rights as a tenant. I have rented a house since september 2008, I just recieved forclosure papers on this property last week. Should I still pay rent to my landlord or should I save this money so I can find a place to move into? Can I be forced by the landlord to still pay him rent? How does it take for the banks to file an eviction notice on me the tenant? If I decide not to pay rent anymore can i be sued by the landlord for it?

APR

I believe that if I received notice that my landlord was going to lose the house to foreclosure, I would want to meet with the landlord to find out what is going on. Sometimes, even landlords work out repayment plans with their banks.

If the landlord insists that he is working it out - find a third party (attorney) who will hold the rent - in other words, you continue to pay but the rent doesn't wind up in the landlord's pocket until the foreclosure is dismissed.

In all likelihood though, if a tenant is paying rent and the landlord still defaults on the mortgage, the chances are slim that the landlord will be able to much other than short sale or DIL.

I suppose I would use the rent money to move as soon as possible - nect time around though make sure the rental agreement has provisions like Ashley mentioned above (although that doesn't always help) - maybe next time, check the public records to see if the potential landlord is in an equity position.

MAY

Im in the same citation as everyboby on this blog. In my case Im in a house that I was renting to own, this agreement I signed was on how much I would be paying for the next 30 years. Moved in April 25,2008 the day after my divorce. Gave 3000.00 for moving in non-refudable was paying every month to a broker for the house. Then I get a letter from the owner himself in Dec 11,2008 that the house is going into forclouser and that I need to get a hold of the realtor that is selling the house and if I was able to buy the house from him right now or he'll find another investor for me. The realtor told me I need to get my money back for Dec. rent from the broker. The next he comes to house when I was at work and put a for sale sign on the lawn. When I got a hold of the broker he did some reasearch and sent me a letter to stop paying until it got fixed. Then I get a hand deliver letter from the courthouse that the owner is in forecloser since Oct. of 2008 while I paid him till Dec. 2008. Ive toalk to lawyers who dont answer your questions or give the wrong advice, since I was told not to pay the money now the realtor hand deliver a 3 day notice stating how much I owe that was not correctin April 2009. Now my family and I have a 5 day notice from the courthouse where I sent a letter to the judge on May 14, 2009since the forecloser is in one court and eviction in another. With the problems with this house and trying to fight to stsy here. Tried looking for a place and I was denied because of the evtion notice since I told the people when i was looking for a place to live was still denied. I f anyone has any answers to this I need help and I don't know who else to turn to I live in Fla.

AUG

So, this is my scenerio. I just rented this house in Jan. I have paid my rent on time its now Aug. I received a foreclosure notice and immediatley notified my land lord. They said they would retain a attorney and fix it. I received a letter from a attorney saying they were retained to assist the landlord. That was months ago now. I have not been notified of any resolution and the fact that the landlord keeps rigging my a/c unit as well as other needed repairs that don't get done my bills are sky high. It's really bad. So, do I have any rights as a tenant to with hold my rent at all. I need some one who knows to help me. I am in Fl Pinellas County. Thanks in advance

AUG

Perhaps the first place to look to see what your rights may be is your rental agreement or lease. Is there anything in there relative to repairs or issues with the unit?

Another thought is that you may consider moving, what are the termination requirements? Does your landlord hold last month's rent? security deposit?

I'm not an attorney but, if I were in your shoes, I would consider a few things: (1) the landlord is collecting rent but obviously not paying the mortgage payments, (2) the property is having issues which are cutting into your pocket and the landlord is not offering needed repairs, (3) the stress of staying in the unit, not knowing who will knock on the door next...the sheriff? would be a bit too unnerving for me.

I would have to guess the landlord doesn't feel confident about keeping/saving the place if he won't maintain it property. Things that make you go Hmmm.

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