Federal Protection for Tenants in Foreclosed Homes
On May 20, 2009, President Obama signed a bill requiring a 90-day pre-eviction notice for tenants in foreclosed properties nationwide.
This legislation will require that in the event of foreclosure, existing leases for renters are honored, except in the case of month-to-month leases or owner occupant foreclosing. If so, a minimum of 90 days notice will be required. Parallel protections are put in place for Section 8 tenants.
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Effect of Mortgage Foreclosure on Tenants
To view answers, click on the questions below.
Q. My landlord is going through mortgage foreclosure - how does this affect me as a tenant?
A. Often when tenants find out that their landlord is being foreclosed on, they are confused and unsure of their rights. Under the new Protecting Tenants at Foreclosure Act signed by Obama in May 2009, the new owners of a property are encouraged to maintain existing leases and are required to give 90 days notice before an eviction.
Q. What is mortgage foreclosure and how does it work?
A. When a tenant fails to pay rent on their home, the landlord can start eviction proceedings to regain possession of their property. Likewise, when a landlord fails to make their mortgage payments, the bank or mortgage company can start the foreclosure process to gain ownership of the property and satisfy the landlord’s debt.
Almost all mortgages are foreclosed by advertisement. The mortgage contains a power of sale clause that allows the lender to foreclose using this method. After the landlord has failed to make their mortgage payments for two to three months, the lender will begin the foreclosure process.
The lender will schedule a Sheriff’s Sale and must publish notice of the foreclosure for four consecutive weeks in a local legal newspaper. At the Sheriff’s Sale, your landlord’s home will be auctioned to the highest bidder, which is typically the bank that holds the loan. After the home is sold, your landlord is entitled to a redemption period during which they may still buy back their home. This period is usually about six months. Only after the redemption period has ended is the property transferred to the new owner.
Q. How will I know if my landlord is being foreclosed on?
A. Your landlord is not required to notify you of the situation. However, you may receive mail regarding the situation addressed to “Occupant.” According to Michigan law, the mortgage company must post a notice on the property within 15 days of advertising the foreclosure sale. This is not a move-out date! Remember, the foreclosure process takes about six weeks and is followed by a redemption period of about six months. Your landlord can reclaim their home at any time during this process. Only after the redemption period has ended does your landlord cease to be the property owner.
Q. What happens to my lease when my landlord is in foreclosure?
A. Your lease is valid until the redemption period has ended. Once the redemption period ends, the new owner (usually a bank) is encouraged, but not obligated, to honor the terms of a lease. If the new owner does not honor the lease, he or she (or the bank) must provide 90 days notice before an eviction can take place.
Q. Do I still need to pay rent during the redemption period?
A.Technically, your landlord still owns the property during this time and is therefore entitled to the rent. Often, a landlord that is losing their property will not always be concerned about the rent.
If you decide to not pay, you should make sure to keep the necessary money until after you move, as your landlord could still bring an eviction case for non-payment of rent. Should you decide to stay past the redemption period, you will probably not need to pay rent for that time. Still, it is a good idea to reserve that money until after you have moved out.
Q. Am I still entitled to the return of my security deposit?
A. Yes. The foreclosure may invalidate your lease before the end of the original fixed term. However, Michigan security deposit law still applies is this situation.
: Michigan Tenant Counseling Program