Real Estate Agent with SellSmart


Original content by Richard Zaretsky

The unintended victims of the foreclosure process are often the occupant of the home that is a tenant.  The landlord is a borrower under a mortgage that has gone into default and is now being foreclosed.  What is going to happen to the tenant as a result of the foreclosure?  How can a tenant or future tenant be protected from the ill effects of a foreclosure?  This article will attempt to address these issues.

Landlord Tenant relationships are governed by State statute

The landlord tenant relationship is governed by statutes of the state in which the real estate is located.  Generally for the rental of a home there is a written lease, although some leases can be oral.  Usually any lease for a year or more must be in writing to be enforceable.

Most tenants obtain possession of a rental home once there is already a mortgage on the property, and this article presumes that is the case with the scenarios discussed.  If a tenant is in possession of the home before a mortgage is put on the property, the rights of the lender may be materially different than discussed in this article.

The foreclosure process and the "unknown tenant"

The mortgage is a lien upon the home.  The right of a tenant is almost always inferior, or subject, to the lien of the mortgage. 

In a foreclosure action, the tenant always gets served with process (the summons, lis pendens and foreclosure complaint) and is usually called the "unknown tenant".  The complaint is going to say that the rights of the tenant are "inferior to" and "subject to" the claims and rights of the lender holding the mortgage.  This means that the lender came first and has a superior interest in the property ahead of the tenant.  It does not matter that the tenant has already paid the last month's rent or a security deposit because the interest of the tenant and the payment by the tenant of those monies came after the lender was given the mortgage by the landlord.

Tenant can be removed from the rental property

The tenant gets served with the foreclosure complaint because the court is going to be asked to rule that the lender and its mortgage is superior to any rights of possession of the tenant to the property being foreclosed.  This is a requirement so that when the mortgage foreclosure sale occurs, the new owner of the property can get possession.  Of course this also means that the tenant is going to be kicked out.  This process is called dispossession or eviction.  It usually is effectuated with a writ of possession issued by the Clerk of the Court at the end of the foreclosure action.  This event happens after the foreclosure sale of the property - usually several months or even a year after the tenant was served with the foreclosure lawsuit.

Tenant gets served - should the tenant continue to pay the rent?

Let's assume that a tenant gets served with a foreclosure action because the landlord did not pay its mortgage.  The tenant paid first, last and security and those monies were all paid to the landlord.  The lease has 9 months to run.  Who does the tenant pay the rent to?  What happens to the last month's rent and what about getting a return of the security deposit?

The tenant has to make a decision about the rent.  The best course of action is for the tenant to respond to the foreclosure complaint by bringing to the attention of the court and the lender that tenant paid first, last and security, who is holding those monies, and what the monthly rent amount is being paid, when it is being paid and to whom.  The Tenant should ask the court to give it instruction on what to do with the rent still due. 

In most courts the judge can determine to have the rent still due to be paid into the court registry so the landlord nor the lender has access to it.  I like this position for a tenant because it creates a fund out of which the last month's rent and security deposit can be recovered without having to chase the now possibly insolvent landlord, thus answering the two remaining questions. 

The alternative of continued paying of the money to the landlord likely will result in an eventual financial loss to the tenant of those monies.  In addition, at the end of the foreclosure action, there is a theoretically better chance that the lender will make arrangements with the tenant to at least stay in the property for the duration of the lease, provided the remaining term is not long term.

The landlord can still evict for non-payment of rent

On the flip side, the tenant has a contract with the landlord.  The tenant promised to pay to the landlord rent in return for the landlord's obligation to provide quiet enjoyment of possession of the property to the tenant.  Obviously if the tenant gets served with a lawsuit to dispossess the tenant from the home, the landlord has breached its obligation of quiet enjoyment.  But, if the tenant stops paying rent to the landlord the tenant can be evicted.

The only protective measure for a tenant is to have the foreclosure judge make a determination of who the rent should be paid to.  See my recommendation above.

Be careful in advance - new leases

Getting into a lease in the first instance in this market is one where you really cannot protect the tenant from some eventuality of foreclosure in the future.  Obviously if a title search shows that the home is already in foreclosure, be sure the tenant understands that this is likely a short stay! 

More important is how to protect a new tenant's advanced rent paid and security deposit in this uncertain market.  We suggest to our clients that some third party hold the advanced rent and security deposit and that those monies not be paid to the landlord except pursuant to the lease contract terms.  The third party can be an attorney or title company or Realtor trust account.  Frankly no one can say that these accounts are 100% safe.  Reasonable judgment must be exercised.

There is a tremendous need to rental homes in this market - but tenants are urged to be careful in the lease terms and flow of money and remain diligent on the payment of each month's rent, advance rent and security deposits.

Copyright 2009 Richard P. Zaretsky, Esq.

Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make.  This article is for information purposes and is not specific advice to any one reader.

Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE  561 689 6660   RPZ99@Florida-Counsel.com - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide!  Shortsales@Florida-Counsel.com  New Website www.Florida-Counsel.com.  See our easy to find table of contents of our articles at Need Short Sale Information? - These Articles Probably Answer Your Question

Posted by


Mindy Thomas
SellSmart Real Estate
Buyer 1% Rebate/1.75% Listing Fee
Free Apartment Locating

Comments (10)

Melissa Zavala
Broadpoint Properties - Escondido, CA
Broker, Escondido Real Estate, San Diego County

Lots of helpful advice here. Tenants have lots of questions about rights. This is very helpful!

Sep 04, 2009 07:39 AM
Matthew Remus
Redstone Mortgage, Mortgage Consultant & CE Instructor - Ahwatukee, AZ

My esperience with this whole issue has shown me that there are some tenants that are put out and some land lords that are taken advantage of.  I have had owner/land lords loose homes because there tenants file injuctions against them and prevented them from accesing the property.

Sep 04, 2009 08:07 AM
Letitia Stevenson
BHHS Fox & Roach | www.DelawareValleyRE.com - Greenville, DE
Listing Agent DE/PA/MD, Digital Marketer & Coach

Mindy, Welcome to Active Rain! Active Rain is a great place to share your knowledge, expertise and thoughts, as well as network and learn so much from the vast pool of talent already onboard.

Welcome Aboard and Much Success!

Sep 14, 2009 12:27 AM

I am a current tenant in a rental home, leased to me thru Century 21. In the last month I have had numerous people knocking on the door, asking me where the owner is, and as far as I know, he lives in California. I currently live in Florida. On Friday there was a note taped to the front door. On Sat I received a Lis Pendens, with Unknown Tenant, stack of papers. I called the courts today and was informed that YES, I do need to respond. I have a 29 year old mentally challenged son, (functions at about 6 years old) and an 84 year old totally bed bound mother that I am caregiver for. I called Century 21, no one has returned my call. I called the governors office, and spoke to someone there and was told they would call me back within 24 hours. I paid first and security when I moved into this home, paid a 400 pet deposit, and currently pay an additional 150 per month to make up for the last months' rent. We will have that paid of I believe in May. So... they will be holding 1900.00 of ours.. which does include my last month's rent. I can' t seem to get an answer from anyone on what I need to do. I physically cannot move all the equipment that we use for my mom. We have a hospital bed, a hoyer lift, etc. She does not walk, cannot bathe except for me to bathe her in her bed, etc.  This market has not only put the owners, but has also devastated many families that are actually doing the right thing. I pay my rent on time every month, and maintain everything as it is supposed to be. The investor was here and said he was happy someone is actually living here, then asked me to sign a document on who they were and where the monies for rent are to be sent, and said he would leave me a copy of what I signed. We started discussing other things and he left without leaving me the document. Now I don't have a clue what I signed. Think I may be in trouble if it comes to anyone coming to aid us in our behalf. Please, I need a bit of guidance.   Thanks.

Feb 15, 2010 02:46 AM
Mindy Thomas
SellSmart - Boerne, TX
Broker - ABR, SFR, E Pro-Boerne, TX ~Buyer Rebate

Obama passed a law that protects you. It is the Helping Families Save Thier Home Act. It states that if the home is foreclosed upon that your lease is still honored.

If there is a year-lease contract between the landlord and the tenant, and the property is foreclosed after May 20, 2009, the bank must recognize that lease. Tenants, in this situation, have the right to stay in the property until the end of that year-lease. However, the lease must have been in existence before the “Notice of Default” (NOD) was recorded. The NOD marks the beginning of the foreclosure process. Additionally, a real tenancy must exist for this to apply. Otherwise, the occupants have only 90 days to vacate the property.

Similarly, if tenants have a month-to-month lease, they are entitled to only 90 days before the bank can take steps to evict them.


In order to prevent breaking the lease, the tenants should abide by all conditions of the lease and continue to pay rent to the owner who holds the rights over the property and the lease.

Before the actual “Trustee Sale,” which takes place at the end of the foreclosure process, the current landlord of the property is entitled to collect rent because he still owns the property. After the “Trustee Sale;” however, the person who purchases the property or the bank will inherit the lease entitling them to collect rent.

Additionally, regardless of there being a lease or not, if the former landlord was responsible for the utilities, the bank must continue to provide utility service. It is illegal for a bank or a real estate agent to try and force a tenant out of the property by turning off the utilities, also referred as “Constructive Eviction.” Banks can be liable up to $100 for each day that utility service is turned off.


Checking to see if the lender has began the foreclosure process on the property by recording the “Notice of Default” is simple. A tenant can call the county’s tax assessor’s office where the property is located. They know when the NOD was filed and if there is “Trustee Sale” scheduled.


If the property is sold at the “Trustee Sale” or after the property has become an REO property, the new buyer will inherit the tenancy and the lease under the new federal law. However, this new owner can break the lease and give the tenant 90 days to vacate the property if he will take possession and live in the property.


Regardless if there is a lease or not, landlords and banks cannot serve tenants with an eviction notice until after the 60 or 90 days have passed. If a tenant has been served prior to the 60 or 90 days they should seek legal help.


Banks are not in the business of managing properties, they are in the business of lending and investing; therefore, they will frequently offer money for tenants to relocate. Usually banks will offer tenants between $2000 and $5000 to relocate within 2 weeks. This allows the banks to sell the property immediately free of tenants. Tenants that have the ability to relocate quickly within the time frame offered by the bank, instead of the time allowed by this federal law, could use the money for a security deposit elsewhere.

Nevertheless, you should understand that you are entitled to 60 or 90 days to vacate after a foreclosure if the option offered by the bank is not beneficial to your situation.

Finally, if you are needing specific legal advice regarding your situation, you should contact your attorney.

Feb 15, 2010 08:14 AM
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