What Rights Do Tenants Have in a Foreclosure?
During the housing crisis, America saw a record number of homes fall into foreclosure, and Arizona bore more than its fair share. A large number of renters whose landlords had defaulted on their loan payments were caught in the middle. The real estate boom attracted sophisticated and novice investors alike. Many renters found themselves renting properties from landlord/investors who had over borrowed against their home at the peak of the market. When rental rates started to fall along with housing prices, many landlords simply abandoned the homes to foreclosure.
All property types are susceptible to this situation. It has become clear that no demographic of renter is immune to the phenomenon of a landlord defaulting on the mortgage securing the rental property. It happens all the way from Section 8 housing to luxury homes in gated communities.
The way this scenario typically plays out is disturbing from the perspective of a tenant, but understandable given the parties’ interests. Although with some variation, the following commonly has occurred: The landlord realizes that it is no longer profitable to continue making the payments on the property. The landlord, of course, often does not inform the tenant that he has stopped making the payments so as not to scare the tenant away or risk a tenant deciding to stop paying rent. The foreclosure process can take quite a bit of time, meaning that the landlord can collect rent for several months before the tenant knows there is anything wrong, and the landlord is pocketing the rent money. By the time the tenants are made aware that the property is in distress, they are informed that they need to vacate the premises very shortly. Some tenants are pressured to vacate in as little as 24 hours.
Protecting Tenants in Foreclosure Act
This scenario was playing out so often that the Federal Government stepped in and changed the law. In May of 2009, President Obama signed into law the Protecting Tenants in Foreclosure Act. As the name suggests, this law was intended to protect tenants in the very situation described in this article. The law may not be able to address all the issues that seem unfair to a tenant who finds herself in a rental property that is being foreclosed, but the law protects tenants by limiting when a new owner can force a tenant to vacate, and by giving them a fair amount of time to relocate after receiving notice. Landlords and tenants need to make sure they are aware of this law, in case the property ever goes into foreclosure.
The Protecting Tenants in Foreclosure Act essentially states that pre-existing, bonafide leases survive foreclosure. In most cases, the new owner of the property must allow a tenant to stay in the property until the lease term has been completed. If the property is going to be occupied by the new owner, the new owner may terminate the lease with at least 90 days’ notice, allowing for much more time than had been afforded tenants prior to the passing of the law. Also, if the tenant had a month-to-month lease, the new owner may terminate the lease with 90 days’ notice; far more that is generally required to terminate a month-to-month lease in Arizona.
What If a New Landlord Gives You Less Than the Time Required?
If a landlord is not aware of the Protecting Tenants in Foreclosure Act, or chooses to ignore it, a tenant may be asked to leave in less than the required time or the landlord may try to evict the tenant in violation of the law. If this happens, it may be sufficient to have an attorney draft a letter to get the landlord’s attention and make it clear that the tenant is aware of his rights and will not be forced out in violation of the law. If that is ineffective and the tenant is forced to leave in less than the required time under the law, the tenant will likely have a claim against the new Phoenix landlord who violated the new law.
It is vital to seek the advice of an experienced legal Phoenix Real Estate advisor to consider the risks and rewards to any action available. The key is to get your attorney involved as early in the process as possible. Regardless of which side of the equation a party is on, whether the landlord or the tenant, the right attorney can help you make the best out of an ugly situation.
Written By Bert Miller – Gunderson, Denton & Peterson, P.C.
Mesa Office: 1930 N. Arboleda, Suite 201
Mesa, Arizona 85213
Phoenix Office: 40 N. Central Avenue, Suite 1400-1532
Phoenix, AZ 85004
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