Renters in Foreclosure

[MrsCat 6]

Hubby and I are now month to month with the lease on our house. The glutton of homes close to foreclosure in our area, have severely decreased the amount of rent lately. We're renegotiating our current to lower the amount or moving to a newer home. We haven't decided yet.

We just located a brand new home for only $700/month. Much less than we're paying now. Seemed too good to be true. Appears that the house is on the brink of foreclosure (owner was nice enough to admit that). We're scared to pack and move into a home and find out a month or two down the road that we might have to leave.

The homes in our area were bought by a lot of people hoping to flip the property and make a profit. Unfortunately, the homes didn't sell and have been sitting vacant for some time. Now, before going into foreclosure the owners are trying to rent the properties to cover the expenses.

Probably like most other places in the country, in the very least its a great time to renegotiate the lease. Our landlord is already willing to drop the rent $200/month to keep us here.

Renters in Foreclosure: What Are Their Rights?

by Attorney Janet Portman

The sub-prime mortgage industry meltdown is now affecting renters whose landlords have lost their rental properties through foreclosure.

. . . . . . . . . .

Who Are the New Landlords?

When an owner defaults on a mortgage, the mortgage holder, often a bank, either becomes the new owner or sells the property at a public sale. If the bank becomes the owner, it may pay a servicing company to handle the property. But don't expect close attention -- these companies are focused on financial matters, not mundane things like maintenance.

Some renters find themselves with a new owner even before the foreclosure. Lawyers in Massachusetts, for example, contend that many new rental property owners are investment trusts that specialize in purchasing troubled loans directly from banks, then foreclosing, evicting, and selling.

Renters in Foreclosed Properties Lose Their Leases

Most renters will lose their leases upon foreclosure. The rule in most states is that if the mortgage was recorded before the lease was signed, a foreclosure will wipe out the lease (this rule is known as “first in time, first in right”). Because most leases last no longer than a year, it's all too common for the mortgage to predate the lease and destroy it upon foreclosure.

That doesn't always mean the lease-holding tenants have to leave immediately -- but those who remain join the ranks of month-to–month renters, all of whom can be terminated with proper notice, usually 30 days. And the new owners tend to move quickly to terminate, giving as little notice as is legally possible (sometimes no more than three days).

Tenants who refuse to leave face an eviction lawsuit, for which they usually have no legal defense. The impact of an eviction on a tenant's ability to find future housing can be devastating. No law prevents a future landlord from automatically rejecting tenants with evictions on their record, even when those tenants were the innocent victims of a foreclosing bank.

There are some notable exceptions, however, to this grim scenario. Tenants who participate in the federally financed Section 8 program will see their leases survive, as will tenants in New Jersey, New Hampshire, the District of Columbia, and, as of the end of November 2007, Massachusetts. In these states, new owners cannot evict lease-holding tenants unless the tenants have failed to pay the rent or violated any other important lease term or law. Tenants in other states who live in cities with rent control “just cause” eviction protection may also be protected.

. . . . . . . . . .

What Can a Foreclosed-Upon Tenant Do?

Renters whose states follow the “first in time, first in right” rule, where a lease can be wiped out by a foreclosure if the mortgage was recorded before the lease, will not be able to convince a court to change that rule. But tenants who learn that their new landlord is a bank can at least lessen the financial consequences by suing the former owner. Here’s how it works.

After signing a lease, the landlord is legally bound to deliver the rental for the entire lease term. In legalese, this duty is known as the “covenant of quiet enjoyment.” A landlord who defaults on a mortgage, which sets in motion the loss of the lease, violates this covenant, and the tenant can sue for the damages it causes.

Small claims court is a perfect place to bring such a lawsuit. The tenant can sue for moving and apartment-searching costs, application fees, and the difference, if any, between the new rent for a comparable rental and the rent under the old lease. Though the former owner is probably not flush with money, these cases won’t demand very much, and the judgment and award will stay on the books for many years. A persistent tenant can probably collect what's owed eventually.

. . . . . . . . . . .

http://www.nolo.com/article.cfm/objectId/B...2E/213/317/ART/

[Ban Hammer 13,345]

given that new one is facing trouble, stay where you are. beats moving probably twice.

[MrsCat 6]

given that new one is facing trouble, stay where you are. beats moving probably twice.

I think that's what we're probably going to do. Keep our eye out for something in the coming months. I hate packing. I'd rather have a rectal exam rather than move. Just don't tell our landlord that, she might know that we're not super serious about moving just yet.

[William33 110]

What are the leasing laws specific to Hawaii?

[MrsCat 6]

What are the leasing laws specific to Hawaii?

Not at all. The lawyer who wrote the article wrote this for the entire United States. Because typically most mortgages and foreclosures operate in a similar fashion. Typically the only things that vary are the length of notice required to foreclose and perhaps how much notice is required by the landlord to evict a tenant.

Apparently Section 8 renters have different remedies and options when their lease ends because of foreclosure. These vary state to state according to the article.

[amiquechu 0]

In most states, once the foreclosure takes place, the new owner (bank) will have to evict the tenants.

It's usually a pretty standard eviction process that the bank always wins...notice to vacate premises within 3 days posted on front door...if you don't vacate after three days the case gets put into eviction court docket...the eviction then goes in front of the judge and the bank gets permission to evict (the county you're in dictates how long this takes...in the county where I had rental property it was only about three weeks)...then the sheriff has to schedule a time to go out and boot the tenant...the bank will hire someone to go in and throw all your stuff out to the curb.

If the possibility of this happening doesn't sound pleasant, go with the sure thing. If a house is in foreclosure, your monthly payments won't get the owner caught up with the bank. They're usually thousands and thousands of dollars down once they're "on the brink of foreclosure". And banks won't work with renters after a foreclosure because the banks are in the money business and want nothing to do with property management.

I used to have rental properties and I used to invest in pre-foreclosures. Neither were very fun.

[msu17 0]

Do you think there would be any way you could work out a short sale with the new home you found? Rather than spend 700+$ per month renting, I'd rather be paying that towards a mortgage. Especially if you can get a great deal on the house.

[William33 110]

In most states, once the foreclosure takes place, the new owner (bank) will have to evict the tenants.

It's usually a pretty standard eviction process that the bank always wins...notice to vacate premises within 3 days posted on front door...if you don't vacate after three days the case gets put into eviction court docket...the eviction then goes in front of the judge and the bank gets permission to evict (the county you're in dictates how long this takes...in the county where I had rental property it was only about three weeks)...then the sheriff has to schedule a time to go out and boot the tenant...the bank will hire someone to go in and throw all your stuff out to the curb.

If the possibility of this happening doesn't sound pleasant, go with the sure thing. If a house is in foreclosure, your monthly payments won't get the owner caught up with the bank. They're usually thousands and thousands of dollars down once they're "on the brink of foreclosure". And banks won't work with renters after a foreclosure because the banks are in the money business and want nothing to do with property management.

I used to have rental properties and I used to invest in pre-foreclosures. Neither were very fun.

Seriously? A renter has no recourse in this scenario and has only days to move out? I saw a movie once (fictional mostly, but based upon actual leasing law in SF), where the resident/building owner could not get rid of an incredibly bad tenant. It took months to get the eviction with the Sheriff in tow.

[msu17 0]

In most states, once the foreclosure takes place, the new owner (bank) will have to evict the tenants.

It's usually a pretty standard eviction process that the bank always wins...notice to vacate premises within 3 days posted on front door...if you don't vacate after three days the case gets put into eviction court docket...the eviction then goes in front of the judge and the bank gets permission to evict (the county you're in dictates how long this takes...in the county where I had rental property it was only about three weeks)...then the sheriff has to schedule a time to go out and boot the tenant...the bank will hire someone to go in and throw all your stuff out to the curb.

If the possibility of this happening doesn't sound pleasant, go with the sure thing. If a house is in foreclosure, your monthly payments won't get the owner caught up with the bank. They're usually thousands and thousands of dollars down once they're "on the brink of foreclosure". And banks won't work with renters after a foreclosure because the banks are in the money business and want nothing to do with property management.

I used to have rental properties and I used to invest in pre-foreclosures. Neither were very fun.

Seriously? A renter has no recourse in this scenario and has only days to move out? I saw a movie once (fictional mostly, but based upon actual leasing law in SF), where the resident/building owner could not get rid of an incredibly bad tenant. It took months to get the eviction with the Sheriff in tow.

Yup. When I volunteered at the red cross emergency food and shelter in MI, we had people coming in fairly often with their rental property being condemned or evicted this way. With it being condemned I dont think they even have 3 days. These were people who already had no $, which is why they were living in such a crappy situation which now was made that much worse. Very sad.

[MrsCat 6]

In most states, once the foreclosure takes place, the new owner (bank) will have to evict the tenants.

It's usually a pretty standard eviction process that the bank always wins...notice to vacate premises within 3 days posted on front door...if you don't vacate after three days the case gets put into eviction court docket...the eviction then goes in front of the judge and the bank gets permission to evict (the county you're in dictates how long this takes...in the county where I had rental property it was only about three weeks)...then the sheriff has to schedule a time to go out and boot the tenant...the bank will hire someone to go in and throw all your stuff out to the curb.

If the possibility of this happening doesn't sound pleasant, go with the sure thing. If a house is in foreclosure, your monthly payments won't get the owner caught up with the bank. They're usually thousands and thousands of dollars down once they're "on the brink of foreclosure". And banks won't work with renters after a foreclosure because the banks are in the money business and want nothing to do with property management.

I used to have rental properties and I used to invest in pre-foreclosures. Neither were very fun.

If its the same way as it is in Canada as well, if you fail to vacate in the allotted time (3 days) and the bank has to hire a 3rd party to remove you from the premises, they are also able to collect the money they spent as well.

[Hilarious Clinton 452]

given that new one is facing trouble, stay where you are. beats moving probably twice.

I agree.

[Scott & Lai 12]

Why is it necessary for the new owner to evict the tenants?

[MrsCat 6]

Why is it necessary for the new owner to evict the tenants?

Problem is that the new owner is the bank - who really could care less about property management and maintaining tenants. They'd rather it sit empty in the event of a sale.

I am sure there are banks that have tenants. There must be somewhere.