What happens when your landlord is in rental foreclosure?
When Your Landlord Gets Foreclosed
by Gary Foreman
The Lying Landlord
Renting an Apartment? Use This Checklist
Nationwide it's estimated that about one third of properties that are being foreclosed are not owner occupied. And, while some of those are second homes, many are rentals. It's probably pretty safe to say that at between 25 and 30% of foreclosures are occupied by a renter.
What does foreclosure mean to the renter? If the bank forecloses on your landlord, they take over the property. Their goal is to protect their financial interest. Sometimes that hurts the renter.
Historically, banks wanted the owner to vacate a foreclosed property. That meant the renter, too. So even renters who had leases were suddenly being thrown into the street without any legal recourse.
In May 2009, the "Protecting Tenants at Foreclosure Act" became law. The main part of the law guaranteed that tenants could stay until their lease was up. Those on a month-to-month basis get 90 days.
Today, in part because of the law and in part because it's bad business to chase away paying renters, banks are allowing more tenants to stay in foreclosed properties. Often they'll use a management company. Some managers are more responsive to renter needs than others.
So what can a renter do for protection? Unfortunately, their options are fairly limited.
It's hard for a renter to determine if his current or potential landlord is in financial trouble or foreclosure. In some counties, court records are available online. Checking your county's website can be a real eye-opener. You can check your landlord by name (or by company name). Look for any pattern that shows financial problems. Make sure you look for liens and mortgages against the property you rent.
If the bank does notify you that your landlord is being foreclosed, contact the local housing agency. They'll be in the best position to tell you which local, state and federal laws apply to your situation. Among other things, you'll need to know who should get your rent checks and who to call for a leaky faucet.
As a tenant, you can sue the former landlord for lost deposits and rent, but the small claims process can take months. Plus, you're trying to get money from someone in foreclosure. The odds of getting your money back are pretty long.
The trickiest time for a renter is when the landlord expects to be foreclosed. Some will collect rent and make no effort to make their mortgage payment. They'll also avoid doing any maintenance. This can go on for months. That's why it's a bad idea to prepay your rent. If you have next month's rent available, better to put it into an insured savings account until the rent is due.
If you're looking for a rental, beware of landlords who seem overly anxious to get you into their unit. Some are attempting to use renters' first/last/deposit to keep themselves afloat financially. Reputable landlords will check your credit and references. Failure to do so could be a sign that they're just after your deposit. Time to run!
Bottom line? It's important for a renter to check out the landlord. The tools aren't particularly good, but they can help you avoid some obvious problems. And, if you do find that your landlord is in foreclosure, contact the bank and housing agencies to see what steps you need to take to protect yourself.
Gary Foreman is a former financial planner and purchasing manager who founded The Dollar Stretcher.com website and newsletters in 1996. He's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money and he's a regular contributor to CreditCards.com. You can follow Gary on Twitter or visit Gary Foreman on Google+. Gary is also available for audio, video or print interviews. For more info see his media page.
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