Any unavoidable circumstances, because of which a person is unable to pay his regular installments, can cause him or her to face foreclosure. Under such circumstances, it is extremely necessary that the renters are aware of their rights. A general awareness of these, helps the renter fight his way through the tough times.
It has been estimated that a large percentage of foreclosures, that occurred in the United States, were on properties that were given out for rent. The landlord of the property might have initially thought that putting his property on rent would help him negate all his expenses and pay his monthly installments. However, the fall in property value and unavoidable circumstances rendered him unable to make his monthly installment payment. Under such cases, the bank or the financial institution where he has mortgaged his property, can initiate the foreclosure process. The renter or the tenant, finds himself in the most awkward and trying of situations, as he is forced to face trouble in spite of paying his regular rent. Understanding the process and its timeline, are the other important aspects that the tenant needs to be aware of, along with the tenant’s rights.
This process does not have the same rules in every state. Before we start with the renter’s rights in foreclosure, let us have a brief understanding of how does the process actually work.
The Foreclosure Process
If the property owner has mortgaged his property to a bank or any other financial institution and is unable to pay his installments, then the bank has the right to initiate the foreclosure process. During the process, the lender approaches the court and the court issues a notice to the property owner. He is asked to pay a fine in addition to his installments, within a certain duration of time. If he fails to do so, the property is auctioned to meet the amount of loan given out by the loan lender.
Why is the Foreclosure Process Hard on Tenants?
When this process is carried out, the renter or tenant staying in the property, often remain unaware of the situation. He keeps paying his rent regularly to the landlord and the landlord may not have the least wish to retain the property or resist the foreclosure. Besides, if the property is in the hands of the bank or some financial institution, they are least interested in the maintenance of the property.
Renters’ Rights During Foreclosure
The tenant’s rights have been strengthened by the ‘Protecting Tenants at Foreclosure Act of 2009’ signed by President Obama, on 20th May, 2009. According to this law, a tenant who has taken a property on lease, can retain the property for the entire duration of his lease. He will have to pay his installments on a regular basis to the new landlord or property owner. This is the case if the new property owner has no intention to reside in the property. In case the new property owner or landlord wishes to stay there, the renter’s rights in foreclosure demands that he should provide a notice of 90 days to the tenant, for vacating the property. Similarly, if the renter staying in the property is paying the rent on a monthly basis and has not signed any lease papers, then he should also be given a 90 days notice period. This notice period, i.e. 90 days, is far more than that in any other country.
These tenant’s rights during a foreclosure ensure the tenant’s security. Besides this, the new property owner should not get the property vacated, unless he wants to reside in it. An empty property will just further depreciate the cost of the property in the market. However, it is always wise that the previous landlord should try out all possible ways to stop a foreclosure, like bailout and mortgage loans. This is because no one comes out a winner after it, and the consequences are as bad, if not worse, as the process itself.