The threat of foreclosure is a very real concern not just for homeowners, but tenants as well. With almost 450,000 foreclosure filings in Florida alone, a large percentage of these apply to rental homes. What happens if the house you're renting goes into foreclosure?
Thanks to the recent passing of the "Protecting Tenants at Foreclosure Act," renters have more rights now than in the past. Currently, existing tenants are allowed to stay until their lease runs out, plus an extra 90 days. If, however, the new owner decides to move into the house full time, the lease can be terminated, but occupants still have 90 days to find new accommodations. This rule also applies if they are on a month-to-month lease.
Exceptions to the above rules occur if tenants are behind on their rent. In such a case, they are given 3 days notice to pay what is owed, or face eviction within 24 hours. The tenants must also be considered bona fide, or they too are exempt from the protections of the Foreclosure Act.
As stated in TITLE VII, SEC. 702--PROTECTING TENANTS AT FORECLOSURE ACT, "a lease or tenancy shall be considered bona fide only if--
(1) the mortgagor or the child, spouse, or parent of the mortgagor under the contract is not the tenant;
(2) the lease or tenancy was the result of an arms-length transaction; and
(3) the lease or tenancy requires the receipt of rent that is not substantially less than fair market rent for the property or the unit's rent is reduced or subsidized due to a Federal, State, or local subsidy."
If a home goes into foreclosures, tenants must be notified and they must respond to it. They should immediately send a letter to the judge overseeing the case, along with name, address and foreclosure number, and copy of the lease if they have one.
The more responsibly the occupant behaves upon notice of foreclosure, the better their chances are of being allowed to stay on with the new owner. In addition, those who have maintained a good repore with the bank, may be offered the option to stay on as caretakers while the proceedings are being completed. Other lenders, for whatever reason, may want the premises emptied earlier than the law stipulates, and in this case may strike up a deal where tenants are offered a cash payout if they leave sooner than required.
There are those that feel this new act doesn't give renters enough options. Often times when a home goes into foreclosure, the banks, not prepared for their new role as landlords, do a poor job of maintaining the home and dealing with the tenant's concerns. In this case, the tenant may choose to move out before their lease is up, but that choice is not legally presented to them.
Although renters are protected in some ways when a landlord stops paying their mortgage, if the home is already in foreclosure before being rented, many of those protections do not apply. It is the renter's responsibility to investigate the status of the house before signing the lease, as some landlords may not volunteer this information. A quick check can be made on RentalForeclosure.com, which tracks foreclosure notices to rental properties.
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