Like other types of property, real estate that is used as rental property can be sold, or may be affected by foreclosure proceedings. However, sales and foreclosures don’t just affect the owners of rental properties, but also the tenants or renters of the property.
Protecting Tenants at Foreclosure Act of 2009
Thanks to a tenant-friendly law that took effect May 20, 2009, tenants need not worry about being immediately put out of their apartment if their building goes into foreclosure. The Protecting Tenants at Foreclosure Act of 2009, covers “any foreclosure on a federally related mortgage loan or on any dwelling or residential real property” and “any successor in interest to such property.” Ultimately, a tenant’s right to stay in their apartment in the event of foreclosure, depends on whether or not there is a lease.
With A Lease
Generally, if a landlord sells a rental property where tenants live, existing leases do not end or terminate. Rather, the new owner of the property becomes the new landlord and as such is entitled to the same remedies against tenants for recovery of rent and for failing to meet the terms of the lease that the old landlord had. Generally, if a lease was in existence before the landlord took out the mortgage on the property, the lease continues in existence after the foreclosure and sale of the property, and the tenant cannot be evicted. The new landlord also cannot arbitrarily raise the rent on an existing lease, and they must get the security deposit that was paid to the old landlord and refund it to the tenant when the lease expires.
Likewise, tenants with leases are bound by their leases and must perform all obligations and duties under them, such as paying rent, keeping the premises clean, and not destroying or damaging the property.
Exception
There’s one exception to the rule that the sale does not terminate the lease: if the lease states that it terminates automatically on a sale of the property, that clause will be enforced as long as the sale was not fraudulent. If a lease is signed for a term that ends after 90 days from the date of foreclosure, the tenant can continue to occupy their apartment all the way to the end of the lease term. For instance, if a tenant just renewed a lease for an apartment for 12 months and the building was foreclosed on yesterday, they could stay in their apartment until their lease expires, which is basically a year from now.
If the lease term ends before 90 days following the foreclosure, then the tenant has the full 90 days.
Exception for primary-residence purchaser
If the building is sold in foreclosure to a purchaser who wants to use an apartment as their primary residence and there is an existing lease, the lease expires on the date of sale. However, the tenant then has 90 days to continue occupying the apartment and start looking for a new rental.
Without A Lease
If a tenant is living in an apartment without a lease, they have at least 90 days after the date of the foreclosure to vacate their apartment.
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