Tenants Major Rights in Foreclosure Cases

The current foreclosure crisis has had a far-reaching impact on individuals and businesses in the U. S. not just on those home and business owners who fell dangerously behind on their mortgage payments taking their property to foreclosure.

Sheriff Posting an Eviction Notice

Tenants who faithfully paid their rent each month have been evicted from their homes because their landlords fell into foreclosure. The National Low Income Housing Coalition estimates that 40% of the households who lost their homes to foreclosure were tenants many of whom had no idea that the mortgages on their home or apartment wasn’t getting paid until the eviction notice was ordered.

In fact, a report by the Lawyer’s Committee for Better Housing titled “Chicago Apartment Building Foreclosures: Impact on Tenants,” found that during last year alone, 6,560 apartment buildings went into foreclosure in Chicago, Illinois. There were 10,691 rental units in these foreclosed buildings–the families in which were forced to vacate their apartments and immediately find somewhere else to live.

Federal Protection for Tenants

In May 2009, President Barack Obama signed a bill into law that protects the rights of tenants who are occupying foreclosed buildings. The Protecting Tenants at Foreclosure Act went into effect May 20, 2009 and preempted all state laws regarding foreclosure protections, except in those states that offer a higher level of protection than the bill provides.

“This amendment would allow any tenants in a foreclosed building the right to live out their lease, providing them with the same protections any other renter would have,” said U.S. Senator (D-N.Y.) Kirsten Gillibrand. “For a family without a lease, the amendment would guarantee a minimum of 90 days notice so that renters have the time and the resources to find a new home.”

The only exception to the above law is when a new owner purchases the foreclosed property and wants to use it as their primary residence.

Your Rights

If you receive notice that your landlord is going through foreclosure, it is important to know and protect your rights as a tenant.

1. Keep paying rent. As long as the landlord owns the building, you are responsible for paying your rent on time each month. Write “Rent Payment” in the memo section of the check and include the month and year for which you are making the payment. You should continue paying rent to your landlord until you receive a court order telling you to pay rent to someone else (the “receiver”).

Depending on the situation, the bank may become your landlord. In such a case, you would be responsible for paying rent to the bank and the lender would carry the full responsibility of maintaining the property.

2. Don’t be intimidated. Unless the court serves you with an eviction notice, you are under no obligation to vacate your home. As stated above, the 2009 Protecting Tenants at Foreclosure Act gives tenants the right to remain in their homes for the duration of their lease, unless the new owner intends to use the property as his primary residence. In such case, the court will give you 90 days to find a new place to live.

If the bank offers you money in exchange for leaving the property early, make sure that the cash payment will adequately cover your moving expenses–including the first, last and security deposit in your new home. Don’t be afraid to decline their offer or request a larger cash payment. Because homes without tenants are easier to sell, they may be willing to offer alarger cash settlement in exchange for the keys.

3. Determine if you are a defendant in the foreclosure proceedings. Even though you haven’t done anything wrong, you may be named as a defendant in the foreclosure proceedings. If this occurs, the court marshal will serve you with papers and you will be listed as a defendant in the court documents.24

Talk to a lawyer or contact legal services in your area immediately after the court marshal serves you with papers. You cannot ignore these documents–you’ll be responsible for responding to the summons, filing court paperwork and appearing for hearings on the scheduled dates. If there are special circumstances that you would like the judge to consider when determining your eviction from the building, you can bring them up at the hearing.