Tenant Rights During Foreclosure
The ongoing housing meltdown has affected renters/tenants along with homeowners in the MILLIONS. Up to this point, the majority of homes that were foreclosed upon were owner-occupied homes (occupied by the hard working families of this country who through no fault of their own ran into difficulties), which has led to an increased demand for rental properties for these displaced homeowners. Due to the continued slump in housing values and less than favorable mortgages on investment properties, there is now an increasing number of properties being foreclosed upon that are owned by investors and speculators that wanted to "cash in" on this demand for rental properties.
While most homeowners will be aware of the foreclosure and will have time to prepare and make alternate plans (if they choose not to stay and fight their foreclosure), that is often times not the case when it comes to renters/tenants when their landlord is facing foreclosure. Unaware that their landlord is even in the foreclosure process, most renters/tenants will continue to pay their rent to the former owner, who then will pocket the money on the property they no longer own, in addition to the former owner neglecting the maintenance and upkeep of the property. Unfortunately, many renters/tenants will not learn of the foreclosure until the sheriff comes knocking on the door to evict the renters/tenants.
Since the bank cannot take the time to handle all of the pesky details of property management, (since they will not stop until they have screwed over each man, woman and child in this country) they will hire a "management company" to be in charge of the property. And these property management companies will also neglect these properties by not making the essential repairs or daily upkeep, in addition to not paying the required utilities, literally leaving the tenants "in the dark".
Prior to 2009, leases were wiped out through the foreclosure process. In 2009, President Obama signed the "Protecting Tenants at Foreclosure Act of 2009" which provided that leases would survive a foreclosure and would give more protection to renters/tenants. After foreclosure, the bank is now required to honor the prior lease, and the renter/tenant can now legally stay until the end of the lease. Renters/tenants with a month-to-month lease are entitled to 90 days' notice before having to move out.
There is one exception for a buyer who intends to live on the property. The new buyer may terminate a lease only after giving 90 days' notice. A renter/tenant who is forced to move out in order for a new owner to move in may consider filing a lawsuit in small claims court. When a renter/tenant signes a lease, the landlord is legally required to deliver on the lease agreement for the entire term of the lease, which is known as a "covenant of quiet enjoyment." A landlord who defaults on the mortgage violates this "covenant of quiet enjoyment", for which the renter/tenant can sue for damages, including moving costs, deposits, etc.
Even more importantly, the "Protecting Tenants at Foreclosure Act of 2009" provides that state legislation which is more generous to tenants will not be preempted by the federal law. These protections apply to Section 8 tenants, too.
Even though it would make the most logical sense to keep the renters/tenants in the properties, since a property full of rent paying renters/tenants makes the property more valuable, the reality is that the banks want these properties vacated as quickly as possible, believing that a vacant property will be easier to sell. Properties that are vacant are likely to be vandalized and will deteriorate quickly as they are not being maintained. Additionally, these properties are not maintained, which will drop the property values of the entire neighborhood.
As an incentive to get the renters/tenants to leave the properties as quickly as possible without asking too many questions, the banks will offer the dangling carrot to the renters/tenants, which is called "Cash for Keys". This is offered in the hopes that the bank will be able to save $$$ on the court costs associated with an eviction. The bank will offer the renters/tenants CASH (which is most cases is not even enough to cover the moving expenses associated with relocating) in exchange for their rapid departure. Most renters/tenants (even Section 8 tenants which are protected) are under the false impression that they have no choice, and feel as if they are forced to take the deal for Cash For Keys.
As always, renters/tenants should consult with an Attorney familiar with property/tenant law in their local jurisdiction in order to weigh all options and to be able to make an informed decision.