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What are a Tenant's Rights in a Foreclosure?

One of the inevitable occurrences during an economic downturn is that the rate of home foreclosures escalates. The recent housing bubble issues resulted in millions of home foreclosures that affected not only homeowners, but also renters who occupied the property at the time of the foreclosure. Even when the economy is stable, foreclosures are a fact of life that affect hundreds of thousands of people each year, and many of these individuals are people who signed a lease agreement in good faith.

Investment Property Is the First Casualty

While many foreclosures are on homes owned by individuals, large percentages are owned by investors maintaining the properties for profit. When the housing values slump along with rising interest rates, it creates a situation where investors can no longer extract enough rent to maintain the profitability of the property, nor can they sell off the investment due to a soft market. The inevitable result is the loss of the investment property to foreclosure.

The Mortgage Lender Becomes The New Landlord

When this occurs, the mortgage holder on the property becomes the new owner and will either place the property up for sale to the highest bidder, or they will bring in a servicing company to maintain the rental on behalf of the bank.

Whichever path a bank chooses to travel down, the end result is the tenant is left with an uncertain future and might even be subject to a new owner who has little interest in properly maintaining the property.

At Least 90 Days’ Notice Must Be Given

The good news for tenants is they no longer automatically lose their rights after a foreclosure. The Protecting Tenants at Foreclosure Act of 2009 guarantees that lease agreements will survive a foreclosure and month-to-month tenants will have at least 90 days' notice prior to eviction after a foreclosure. Tenants with a lease agreement can stay in the property until the end of their lease unless the property is purchased by an individual who intends to occupy the property themselves, in which case they must give a 90-day notice to the tenants.

It Is Possible to Negotiate a New Lease

It is important to note that even after foreclosure, some tenants are able to negotiate a new lease on the property if they wish to stay. This can be a positive situation for all parties involved, especially if the new owner sees the investment potential of the property as a rental and understands the wisdom of keeping paying tenants in the property. Regardless of how the situation shapes up, even in the worst case scenario, renters can rest assured that they will have at the minimum 90 days' notice to find suitable housing should their property be foreclosed on.


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