Tenants rights during foreclosure vary from state to state, but many states offer similar protection. Unfortunately, in today's economy, some landlords are undergoing foreclosure, and many tenants have no idea what rights they're entitled to during the process.
Federal legislation provides for tenants rights.
In May 2009, the federal government signed legislation into effect that protects tenants during foreclosure. Among other things, this legislation states that new owners must honor tenants' leases through the end of the lease. The only exception to this rule is, if new owners intend to occupy the property themselves, they must give tenants a 90-day notice to vacate, even if the lease would otherwise run past that date. Month-to-month tenants are also entitled to remain in the property, with a minimum of 90-days notice to terminate tenancy.
More generous state laws preempt the federal legislation.
The "Protecting Tenants at Foreclosure Act of 2009" also says that, if a state has more generous tenant protection laws than the federal bill, state laws apply. If you live in a state that requires more notice or grants you additional rights, your state's laws apply and supersede federal law. Check with your state laws on tenants rights during foreclosure to determine which laws are more advantageous.
Tenant laws provide little recourse for tenants.
While the new legislation is ideally designed to make life easier for tenants, it also removes any recourse that tenants might have had to pursue a remedy in court. Because the lease continues to be honored as if ownership had never changed hands, tenants do not have a legal right to challenge any aspect of the existing lease under new ownership. However, if a new owner fails to comply with the state's landlord-tenant laws, tenants can pursue legal remedies to resolve those circumstances.
Remedies available against the prior owner.
Only one circumstance provides for remedies against the prior owner: If a tenant is forced to move with 90-days notice but before the end of the lease. For example, if you have 6 months left on your lease, and a new owner gives you 90-days notice that you must move, you'll still have 3 months left on your lease at the end of the term. You can then sue the former owner in small claims court for fees associated with termination of the lease, including any costs to find a new apartment, realtor fees, application fees and rent differences for the remainder of the lease term.
"Cash for keys" offers.
In some states, new owners are telling tenants that they have to leave the property, and offering them small buyouts to move. Under federal law, this is illegal. Tenants are free to stay for the remainder of the lease unless the new owner intends to occupy the property personally. Tenants are under no obligation to leave a property that has been foreclosed, and they should seek legal counsel or contact state housing agencies if owners are trying to force them out.
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