As a result of the foreclosure crisis, renters and tenants are now also being affected in addition to homeowners. An owner previously had occupied the average foreclosed home, but speculators who were interested in rent could have possibly owned it. These owners were stuck between falling housing values and rising mortgage interest rates. By a large number, they lost their investments because owners couldn’t sell or obtain enough rent to cover monthly costs.
When an owner defaults on a mortgage, usually a bank either becomes the new owner of the property or may sell the property publicly. The bank may have to pay a servicing company to manage the property. However, don’t expect much close attention, as banks are interested in finance not maintenance. Some tenants may find themselves with a new owner even before foreclosure proceedings, largely because many rental property owners are investment trusts that buy troubled mortgages directly from banks. They then foreclose, evict, and sell to a new owner.
What this means for tenants is that new owners means no new maintenance. Unfortunately, many tenants don’t have any idea that their building has been taken at foreclosure. Many tenants continue to pay rent to the former owner, who then may pocket the money but has no legal responsibility to maintain the building. Many banks are stuck with larger numbers of foreclosed properties that they can’t sell and don’t make repairs or even pay the utility bills.
President Obama signed a law call or texted the “Protecting Tenants at Foreclosure Act of 2009” which allows most renters to continue their leases after a foreclosure. The tenant is allowed to stay until the ending of the lease, while monthly tenants have a ninety-day notice before having to move out. Strikingly, the law provides that federal law will not preempt state legislation beneficial to tenants. The protections also apply to Section 8 tenants, tenants who live in cities with rent control as well. These types of tenants can rely on the ordinance list of allowable termination. A change of ownership, without anything else, doesn’t justify termination.
The question remains whether it makes sense to evict tenants; many new owners believe that vacant properties are easier to sell. However, in many cases a building full of tenants who are paying rent every month may be more valuable than a vacant building. Also, vacant buildings may be more prone to vandalism because no one is there.
As a result of 2009 federal law, most tenants with leases can keep them. Tenants with leases unfortunately do not have legal recourse against former landlords because they are in the same legal position. The lease continues to survive and ends at the same time at it would have without the foreclosure affecting it. Also, monthly tenants understand that they can be terminated with notice and ninety days is no longer the state’s termination period. A tenant holding a lease whose rental has been bought by someone who wants to move into the property can lose the lease with ninety days notice.
A tenant holding a lease who has to vacate because the new owners are moving in might consider filing a lawsuit against their former landlord in small claims court. If you or a loved one is facing foreclosure, please contact a Connecticut foreclosure defense attorney, like me, to find out your various legal rights and options to best proceed.