What happens to tenants when the landlord goes into foreclosure?

UPDATE

Since this article was posted, federal law has changed to protect the rights of tenants. If you’re a Florida resident and your landlord is in foreclosure, find out what you can do to stay in your home for the duration of your lease, under the “Protecting Tenants at Foreclosure Act of 2009,”.

Time to pack?

It’s a renter’s nightmare: a knock on the door, sheriff’s deputy standing outside with an eviction order because the landlord fell into foreclosure and the property was sold.

Time to pack, right?

Florida attorney James Tai, who handles landlord/tenant cases, says:

There really is nothing that tenants can do to if the property is foreclosed upon. The best that they can do is try to get advanced notice, so that the tenants do not have to make moving arrangements on short notice. In some instances, a tenant may have as little as 3 notice days to vacate the rental property. If a tenant does not have money saved up for relocation, this often leads to disastrous results.

James goes on to describe when a tenant has the right to notice in a foreclosure proceeding.

Even tenants have rights in foreclosure

I don’t completely agree with James when he says that there’s “nothing” a tenant can do. As James notes, a tenant who’s already in the property (even without a “signed” lease) is a “person in possession” who is a necessary party to the foreclosure action. In other words, the tenant is a co-defendant who has the chance to raise any legal defenses that might exist. And in some foreclosure cases, the tenant can raise some of the same defenses that the landlord could raise. That means that a properly-prepared tenant who is highly motivated to stay in their home could extend or even defeat the foreclosure, or create enough leverage that the foreclosing plaintiff agrees to let them stay on, even after the foreclosure.

Standing and other defenses

How? Well, there’s always the standing defense, one of my favorites. “Standing” simply means that the foreclosing plaintiff is the right person or right entity to be foreclosing – that they have the right to do so. If the plaintiff lacks standing, they lack the right to foreclose, and the tenant gets to stay. The standing defense is most commonly seen where a loan has been sold one or more times and it’s not completely clear who owns it. A foreclosure complaint which contains a “lost note” count often is a warning sign that a standing issue is present. So a tenant who gets served with a foreclosure complaint, one that includes a lost note count, may want to consult a lawyer to see if a standing issue could be raised to keep the tenant in the home.

(For a more detailed explanation of this and other defenses, read our free 30-page “Consumer’s Guide to Defending Florida Foreclosures.”)

Standing is just one of maybe a dozen different defenses to a foreclosure action, each of which could keep the tenant in their home for the rest of a one-year lease or even longer. But the tenant has to be willing to fight.

Tagged as: foreclosure defense, landlord, tenant