In light of the housing crisis, many homeowners are facing foreclosure for the first time in their lives. It is a difficult and stressful process for homeowners, but what happens if you are a tenant in a rental property that’s in the process of foreclosure?
What are your rights as a tenant?
It is important to note that as a tenant, by law you do have certain rights. The Protecting Tenants at Foreclosure Act (PTFA) was enacted by Congress in May of 2009 as part of the “Helping Families Save their Home Act”. In 2010, the PTFA act was extended to 2014. If you are a tenant facing a foreclosure situation, assistance provided by HUD-approved housing counselors is available at no cost. A listing of counselors by state is provided on the HUD website.
The PTFA act protects tenants with a valid written or oral lease agreement in effect at the time of foreclosure. Unless otherwise notified, you will continue to make your rental payments on time and in full to the landlord. In return, the landlord must honor the terms of your lease agreement during the foreclosure proceeding. The landlord must also continue to maintain the property accordingly and make any necessary repairs when requested. Once the foreclosure proceedings have completed, the new owner must also honor your lease agreement. If the new owner intends to use the property as his residence, you will have 90 days from the time the new owner takes ownership of the property to vacate the premises.
Because the property is in foreclosure, it is important to document all correspondence to and from your landlord. Log rental payments and keep copies of your documentation for future reference. Any agreements made between you and your landlord during the foreclosure process should be documented as well.
Signs that a rental property is in foreclosure
Normally, a notice is sent to the property owner to advise them of the pending foreclosure; however, tenants are often last in the notification process. By then, you can only understand the time frame you have to work with and what will happen when the foreclosure process is completed.
Most foreclosure proceedings begin 4-6 months after the homeowner misses the first payment. When the foreclosure process is started a notice is sent to the last known mailing address of the owner and also to the property address. This notice is not notification for the tenant to vacate the premises. It is important to note that your lease is still valid during the foreclosure process and you need to continue to make your rental payments as agreed. If you find yourself in the unfortunate predicament of renting a property that is being foreclosed upon, contact reliable sources immediately to find out what tenant rights surrounding foreclosure are in your state.
How to find out if the property you’re renting is in foreclosure
Hopefully, your landlord will notify you if they are in the position of foreclosure, which would give you some time to make other living arrangements. But this doesn’t always occur, so there are several ways to find out that you may be renting a property that is in foreclosure:
- Watch for notices in the mail or phone calls from lending institutions that may be hinting at foreclosure.
- Public notices are placed in local newspapers advising of foreclosure, public auction, sheriff’s sale or trustee sale.
- Notices of foreclosure, default notices and property liens are recorded at the county clerk’s office. Depending on your area, you may be able to access these records online.
Foreclosure and the “Cash for Keys” alternative
Cash for Keys is a process used by homeowners in foreclosure or tenants renting a property in foreclosure for relocation purposes. Cash for Keys is not a government program or law and there are no rules that must be followed. It is entirely up to the Mortgage Company or homeowner to accept the Cash for Keys offer. The homeowner or tenant is offered money by the Mortgage Company or new homeowner to vacate the premises, leaving the property clean and undamaged.
Often during the foreclosure procedure, Cash for Keys is promised the homeowner or tenant to ensure that the property is relinquished in a timely manner and in good condition. There is no guarantee that the bank will offer the Cash for Keys incentive to the tenant so you may have to ask for the program.
If the bank agrees to your Cash for Keys request, they usually hire a 3rd party realtor to assist with the process. The bank ultimately decides how much will be paid to the tenant; however, the 3rd party realtor can negotiate for the tenant regarding the amount of cash and when the property will be vacated.
Costs associated with Cash for Keys
When negotiating the Cash for Keys payment, consider the other costs associated with relocating, including fees related to:
- First and last month’s rent to secure the new home or apartment;
- Other potential fees such as a security deposit, application fee or pet deposit;
- Packing materials and boxes;
- Moving truck rental costs or fees associated with hiring movers; and
- Utility deposits.
In addition, if you have pets or a large family, it may take a while to find a rental property that fits your needs and your price range.
While it is important to note that you should not attempt to extort the bank for an enormous amount of money during the Cash for Keys process; you should try to negotiate at least what it would cost to move you and your family to new living accommodations. As a tenant, the foreclosure is not your fault and the bank or new homeowner wants to receive the property in good condition. Cash for keys can be a win-win situation for both parties.
Going forward, there is no way to know when you move into a property if there will be a foreclosure in your future. Knowing your rights as a tenant will empower you to survive the tenant foreclosure process with the least amount of stress and worry.
Written By: D. Jordan