Wednesday, September 14, 2011

What rights do renters have in foreclosures?

I have been asked a lot of question lately, about renters who are renting a property in foreclosure.  The first most basic question is, do they still have to pay their rent? The answer to that is yes. They are still required to pay for the property they are living in.  The owner still legally owns the property until the foreclosure is final.  The agreement to pay your rent is between you and the owner. The owner's agreement to pay his mortgage is between him and the bank. They are two separate agreements
Before May 20, 2009, most renters’ leases were null and void upon foreclosure. The rule in most states was that if the mortgage was recorded before the lease was signed, a foreclosure wiped out the lease (this rule is known as "first in time, first in right"). Because most leases are for a year or less, it was all too common for the mortgage to predate the lease and destroy it upon foreclosure.

These rules changed dramatically on May 20, 2009, when President Obama signed the "Protecting Tenants at Foreclosure Act of 2009." This legislation provided that leases would survive a foreclosure, meaning the tenant could stay at least until the end of the lease, and that month-to-month tenants would be entitled to 90 days' notice before having to move out.  The new owner may terminate the tenancy if the owner will occupy the unit as a primary residence, and has provided the tenant a notice to vacate at least 90 days before the effective date of such notice. This is the only exception to the rule that the tenant may not be evicted during the term of the lease.

A lease or tenancy shall be considered bona fide only if:  the mortgagor or the child, spouse, or parent of the mortgagor under the contract is not the tenant.  The lease or tenancy must be the product of an arm’s-length transaction; and the lease or tenancy requires the receipt of rent that is not substantially less than the fair market rent or the rent is reduced or
subsidized due to a federal, state, or local subsidy.

 If the lender believes that the tenancy or lease is not bona fide, it can proceed with
the eviction action under applicable state law. If the tenant files a responsive pleading in which it claims that its tenancy or lease is bona fide, then the issue will become a
question  for the court to determine. In the event that the court agrees with the
tenant, the lender’s eviction action will likely be dismissed. However, even if the action
is dismissed, the might find that the tenant owes rent payments to the lender.

If you find yourself in this situation, your best bet is to contact an attorney. 

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