It’s an unfair situation when the tenants are taking good care of their house, they’re paying their rent on time, and they want to stay, but the landlord doesn’t make his payments. Eventually, the house will be taken over by the bank or possibly a private individual. What are the tenant’s rights?
First of all, if you suspect your landlord isn’t making his payments, and you think the sheriff may show up any day to move your stuff out to the curb, don’t worry. If you’ve been living there a while, you will be notified when the foreclosure begins. This mailing should explain everything you need to know.
If you’ve received that foreclosure notice, or your landlord has told you that he’s not making the payments, I believe you should put your rent money in a savings account. The landlord cannot collect the rent and not pay the bank. That is called equity skimming, and is a felony. I’m not a lawyer, and the laws are different in every state, so you should check with an attorney.
I heard of a situation where the tenants stopped paying their rent when they found out the house was in foreclosure. They ended up staying there for 11 months for free, and the bank eventually offered them $1500 to move out if they didn’t have to evict them. This may be an exceptional situation. During the sub-prime mortgage crises, banks were overwhelmed with houses to take care of, and some slipped through the cracks.
The Protecting Tenants at Foreclosure Act
The Protecting Tenants at Foreclosure Act was passed in 2009, and expires on 12/31/12, though I would expect it to be extended. In the past, a foreclosure would wipe a lease off the title of the property, meaning the lease is cancelled, and the tenants had to move out if the new owner wanted them to. Under the act, tenants with a valid lease, can continue under the terms of the lease. And, if the lease is already expired, they can continue to pay the rent and have 3 months after the foreclosure sale to move out.
If you have any questions, the first place I would go for help is the lawyer handling the foreclosure. In Colorado, there is a public trustee handling the foreclosure, which is a county agency, and they are very helpful.
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