HOW HOME FORECLOSURES AFFECT TENANTS

        What should you do when you learn that your landlord might be losing your house to foreclosure? All too often, people in this situation make decisions based upon confusion, misinformation, or wishful thinking. Without all the facts, you may end up jeopardizing your tenancy.

        There are two kinds of foreclosure actions. Mortgage foreclosure occurs when the owner fails to make payments to the bank holding the mortgage. Tax foreclosures are brought by the city of the county when the owner has stopped paying property taxes for an extended period of time. Below we will discuss the problems that each can cause a tenant.

        If your landlord stops paying the mortgage on the house you are renting, the bank may start foreclosure proceedings. Sometimes landlords react to news of foreclosure by making the required payments to the bank. Sometimes the landlord cannot make these payments and the bank takes ownership of the property. When a foreclosure is on its way, tenants need to find out who to pay the rent to and what the bank intends to do with the property, if the foreclosure actually occurs.

        Tenants usually first hear about a mortgage foreclosure when they are served, either in person or by mail, with a Summons. This document gives notice to the landlord and all tenants in the building that a foreclosure proceeding has begun. This summons will have the name and phone number of the bank lawyer responsible for the foreclosure. You should contact the bank’s lawyer as soon as possible, identify yourself as a tenant and tell the lawyer you have questions. First ask if the court has appointed a Receiver to collect rent for the property. Ask to be contacted as a Receiver is appointed. If a Receiver has been named, you should get papers instructing you how to pay your rent. If no Receiver has been appointed, you should continue to pay rent to your landlord. It is very important that you get a receipt for any rent payments made. If you are confused about the proper person to pay rent to or have been told not to pay anyone, call Neighborhood Legal services for advice.

        Until you figure out who to pay do not use the money for any other purpose. Sooner or later the proper owner will claim his rent and you may be evicted if you cannot pay it.

        You should also ask what the bank plans to do with the property if the foreclosure actually happens. Unfortunately, most banks begin their ownership by asking all tenants to move. See if the bank attorney can tell you when the foreclosure will take place and how much time you will have to move.

        Finally, remember that your landlord can stop the foreclosure by making the required payments or reaching some other agreement with the bank Since it is possible that your landlord will keep the property you should always try to deal with him or her in a businesslike manner.

        When a homeowner fails to pay property taxes the city or county can take the property from the owner and sell it by public auction. This process, called tax foreclosure, can be very confusing to both the tenants and the landlord.

        Several times each year the city seizes properties with overdue taxes. It then auctions off the properties to the public. Interested buyers must make a down payment and have a set deadline for paying the balance. If the final payment is made, the buyer becomes the new owner. If this final payment is not made, the sale is cancelled and the former owner gets the property back, along with the tax bill that started the problem.

        The trouble for tenants begins when they receive notice of the auction. Often tenants are told that they no longer have to pay rent to their landlord. Government offices may suggest that tenants should not pay rent. This is not true. Until the buyer makes the second (final) payment the original landlord has the right to collect rent on that property.

        If/when the buyer makes the final payment, all rent due after the final payment has been made should be given to the new owner. At no time during a tax foreclosure can a tenant live rent free.

        Many buyers often fail to make the final payment. When this happens your landlord will get the property back and must pay the old tax bill. If you have not been paying rent, your landlord can demand all that you have not paid. If you cannot pay it, you may be evicted. If for any reason you do not pay your rent, always hold on to the money.

        If you think your house will be changing ownership, it is important that you get the facts as soon as possible. If you receive notices from the city, attorneys, or your landlord about a foreclosure, contact those persons immediately. Get information regarding what is happening to your house, who you should pay rent to, and what the new owner intends to do with the property.

        If you are confused by the information you receive, or want a review of the situation, contact Neighborhood Legal Services, Inc.

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