Tenants in Foreclosed Properties. Myths and Reality

There is a lot of discussion of tenants in properties that go into foreclosure, and a lot of it is plain balderdash (learned this new word to me from Lenn Harley). At least here in Florida.

Here is why. When the Lender files Notice of Default, the Sheriff will bring a copy to the property and wake you up at 6 AM in the morning and will give it to whoever is in the house or condo. If you look at who is being served, there is usually a line: unknown tenants.

So, trying to hide that fact that the landlord is in foreclosure does not work. Tenants will also be receiving subsequent Notices, that the Sheriff will be bringing to the property. In reality, and not in soap opera, many tenants decide that once the Landlord is in foreclosure, they do not have to keep paying the rent.

I have seen a number of such cases where the Landlord does nothing and has the tenants live there for free.

It does not have to be this way. The tenant is required to continue paying rent to the landlord according to the terms of the lease. Look at the lease. There is nothing in our standard lease that requires the landlord to continue making mortgage payments. The landlord’s relationship with his/her Lender is not part of the lease.

The tenant is not a party to Landlords agreement with the Bank, and has no ability or right to enforce a mortgage agreement between the Landlord and his/her Bank.

Until the foreclosure auction finalizes the sale of the property to a new owner or back to the Lender, the landlord still owns the property and is allowed to claim the rent.

There are new laws in Florida allowing homeowners’ associations and Condo owners associations to restrict renting the properties if the owners are in default to the associations, but it has nothing to do with the mortgage payments.

Foreclosure does not terminate the lease and “Protecting Tenants at Foreclosure Act of 2009” is Federal law.

“The tenant could stay at least until the end of the lease, and month-to-month tenants would be entitled to 90 days' notice before having to move out”

A person, who bought the property with tenants in place at foreclosure auction, can evict the tenants prior to the expiration of their lease, but not earlier than 90-days of providing proper notice only if s/he bought with the intent to use it as primary residence.

Funny enough, but the landlord, who lost the property to foreclosure, and the new owner wants it as primary residence, and kicks the tenants out provided s/he gave them 90-day notice, but prior to expiration of there lease, can be sued by the tenants.

Yep, that’s right. The Landlord signed a lease for, for example, 12 months, and they lost it in 6 months, so they can sue the landlord. It is called the “covenant of quiet enjoyment”, and the inability of the landlord to make mortgage payments, which causes the foreclosure, is a violation of this covenant.

Of course, you may end up winning in court but not see the money, but if you are very persistent, it is quite a possibility.

So, if you are the landlord, and you are going through a short sale or foreclosure, it is best to let the tenants know it from you, and not from an early morning visit from the Sheriff. Be upfront, and explain their situation, so that your tenants understand it.

Surprises here can leave you with the empty wallet, unless you want to add another battle to the short sale or foreclosure.