New laws give renters a reasonable 90-day notice of foreclosure eviction and, in most cases, protect their lease agreement. However, both of these safeguards still can be circumvented.
While the foreclosure laws (which took effect May 2009 and expire Dec. 31, 2012) look good on paper, Columbia, S.C., real estate lawyer Fred Shipley warns renters, "Most landlords facing financial trouble will not send a foreclosure notice to their tenants but will continue to collect rent instead."
While banks are supposed to honor a legal lease on a foreclosed property, renters should be aware that:
- There's no law that prevents the bank from re-selling the foreclosure.
- A new owner would not have to honor the lease if he or she intended to live in the property.
- A lease does not have to be honored if the rent is below fair-market value or the tenants are related to the owner in default.
So how can renters protect themselves from foreclosure eviction, especially when 1 in 348 homes is in foreclosure?
Our industry experts explain smart, practical moves that renters can take to protect themselves from foreclosure before and after signing a lease. Here's their advice on how to either avoid a foreclosed property or negotiate to stay in one:
1. Search county records. "If you're looking for a rental, make sure the property is not in pre-foreclosure." says Lynn Madison, a short sale and foreclosure resource specialist for the National Association of Realtors. She advises renters to check property records at the County Clerk's office before signing a lease.
2. Request mortgage statements. Madison, who also specializes in risk management, suggests that renters evaluate a landlord's financial stability as well. "Ask to see recent mortgage statements or receipts for the rental property," says Madison. "You want proof that the owner is current on payments." Imagine searching for an apartment, moving, unpacking and then having to start that whole process over just six months later because the property went into foreclosure.
3. Record your lease. To make sure that legal notices are received in the event a rental property goes into pre-foreclosure, Shipley advises renters to record their lease with the county office. "It costs about $10 to do and guarantees that the county will mail legal notices to the address on the lease." By doing this, renters are no longer dependent on the landlord to disclose foreclosure notices.
4. Initiate contact. "If the home you're renting is in foreclosure," says Shipley, "don't just sit there if you want to stay in the place, be proactive." He advises tenants to reach out to the bank or lawyer involved in the foreclosure. "Let them know you have a good payment history and have taken care of the property and would like to stay." Instead of reselling the property immediately, which could terminate the lease with a live-in buyer, the bank may be persuaded to rent. "We are starting to see banks working with tenants," Morgan confirms. She, too, believes tenants must work with the banks to achieve their best outcome.
5. Become an asset. Banks can and will advertise good tenants to attract real estate investors. In these situations, renters are a valuable asset, offering stability and minimizing the investment risk. In a recent property transaction handled by Shipley's firm, the tenants were the reason the property sold so quickly. "The buyer felt so good about the way the tenants had taken care of the place; that was one of the main reasons the investor purchased that property over other options."
6. Investigate "cash for keys." If the bank intends to vacate the property and re-list it on the market, a representative or the bank's real estate agent may offer "cash for keys," a legal way to pay tenants to leave by a certain date. The offer also requires tenants to legally release all rights to the property and claims against the bank. A good deal for the renter would cover basic moving expenses and any lost security deposit. (Also see "Get Your Apartment Rental Deposit Back.")
7. Check state and local laws. The "Protecting Tenants at Foreclosure Act of 2009" states that local foreclosure-tenant laws take precedence over federal laws when the local laws provide better protection to tenants. Be sure to look up state and local laws for your area.
If renters find themselves in a hostile situation or unable to resolve a foreclosure eviction matter, they should contact the agent initially involved with the lease, a real estate lawyer or the National Law Center on Homelessness and Poverty.