Renters Rights: Renting in a Foreclosed Property

The mortgage crisis that hit the United States and then spread globally has resulted in millions of foreclosures. Not all of these foreclosed occupants are homeowners. In many instances, the occupants of the foreclosed property are renters who are renting the property with no knowledge that the owner has defaulted on the loan and is in the foreclosure process. These renters suddenly find themselves renting a property now owned by a bank, which has no obligation to them as landlord and can demand that they vacate the property within days. If you find yourself in the position of renting in a foreclosed property, your renters' rights are few and your recourse is very limited.

If your rental has been foreclosed, the new owner is a bank. The bank did not enter into the rental agreement with you and has no obligation to deal with you as a renter. Generally your lease terminates with the foreclosure if the mortgage on the property was recorded before you entered into the rental agreement. It is possible that you entered into your lease prior to recording of the mortgage that is being foreclosed upon, meaning the current mortgage was recorded subject to your lease. In that event your renters' rights would include a claim to remain in the property due to being first in time. However, given the short-term nature of renters and renting, odds are that this scenario doesn't apply to you.

It doesn't necessarily make sense for the new owner to force all of the renters out of their properties. It also doesn't make sense to enter into a new agreement with the bank as the bank likely has no interest in maintaining the property and will likely move to sell it as quickly as possible. As such, you will need to leave. The bank will likely move quickly, giving you as little notice as possible. Most state only require a three days notice to vacate a property in these situations. If you refuse to leave you can be evicted, for which you have no legal defense and which can have lasting consequences for your credit and your ability to rent in the future.

While your options are bleak, you do have certain renters' rights that can help lessen the financial impact of being forced out of your rental. By defaulting and entering into foreclosure, your landlord violated the rental agreement. Landlords are obligated to deliver the rental for the full term of the lease. A foreclosure obviously violates this duty. As such, you can sue your former landlord for the damages caused by his foreclosure, including the cost of searching for an apartment, application fees and the difference between your old rent and your new rent. You may also be able to sue your landlord for rental payments you made after he entered into foreclosure. There is a reason, however, that your old landlord was foreclosed upon. It may take time and effort to collect from a potentially judgment-proof former landlord but you do have the right to attempt to do so.

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