Discussions around the housing crisis and high rates of mortgage foreclosures 
have centered around the detrimental effects on the banking and financial industry. Â We hear everyday more news about executives who pay themselves exorbitant bonuses and spend frivolously on travel and other perks. Â We hear rhetoric from government officials about how imperative it is to throw hundreds of billions of dollars at irresponsible corporations led by selfish and unscrupulous management. Â The ramifications of the housing and mortgage foreclosure crisis to the less-wealthy Americans are now getting some attention. The foreclosures are not all on homeowners who reside at the property. Â Sometimes, a mortgage foreclosure is on a property with renters. Â Ever wonder what happens to someone if their landlord defaults on his/her mortgage?
Typically, a lease agreement between a landlord and tenant is superseded by the language dealing with foreclosure proceedings in the mortgage terms. Â If the landlord of a property forecloses on the mortgage and the bank assumes control of the property, neither the landlord nor the bank are under any obligation to allow the tenant to continue the lease, regardless of the tenant’s payment history. Â The bank and the landlord are also under no obligation to notify the tenant of the foreclosure proceedings. Â What essentially happens is one day a banker shows up to the foreclosed property and serves the tenant a thirty day eviction notice. Â No prior notification, no legal recourse for lost security deposits or other funds given to the landlord, just evicted with a month-long countdown timer.
Almost 20% of foreclosures in the U.S. have tenants in a lease agreement for the property.  Some markets, such as New York City metro, have up to 50% of foreclosures with leasing tenants.  The common thirty day period of eviction notification affords people little time to find a new place to live. Since evicted tenants usually do not get their security deposit back it is even more difficult to save for a new place to live within thirty days. A renter will end up paying double to triple the normal monthly rent  including the security deposit for the first month on the new lease.  Many people, especially in high rent districts like New York, cannot afford to both lose the security deposit on their current lease and pay for the costs of entering a new lease on a month’s notice.
You wonder why, if you are promptly paying your rent, would your landlord have to foreclose on the mortgage? Â The answer is that the worsening economy has resulted in landlords utilizing their rental income to pay off other debts or otherwise misappropriated. Â As of today only Ohio, Illinois, Minnesota, Rhode Island, Maryland, Michigan, and California have laws to warn renters of foreclosure proceedings with greater notice and to provide assistance for getting their security deposit back. Â New York State Senator Jeff Klein is working on similar legislation to help renters in this unfortunate situation. Â Hopefully more states will follow their example and work toward instituting similar legislation because renters are people, too, and they deserve a little protection from undue harm caused by negligent and irresponsible landlords. Â It’s not like renters get to do a credit and background check on their landlords during the rental process.
Image used in this Post
Homeless Victim courtesy of flickr user d70focus under the CC license.
4 Comments
Excellent point. You don’t often hear about what happens to the tennants when a rental is forclosed on.
You have to wonder why a bank would evict a renter in the first place. The worst thing in the world to own is a house that nobody lives in. If the bank siezes a property I would think that it is in their best interests to absorb the lease and maintain some small amount of income in the form of rent payments that would make that asset a bit less toxic. Especially in a market like this where it can take years to sell a house.
That’s a really interesting point, Jack. I guess historically it made more sense for the banks to re-sell the home because the appreciation in value was a greater return on investment than continuing a lease. But in the current climate with housing devaluations and a lack of buyers, it would seem to make sense for the banks to want to keep tenants who pay timely because, like you said, at least that makes the asset worth a little more and they are generating some cash flow.
Right from nj.gov site:
Your Rights
Residential tenants in New Jersey cannot be evicted solely because the property where they live is in foreclosure or has been foreclosed.
In general, New Jersey law protects tenants against eviction from their homes so long as they:
pay the rent,
respect the peace and quiet of their neighbors,
avoid willful or grossly negligent damage to the property, and
obey the reasonable rules theyhave agreed to in writing.
Enacted in 1974, the New Jersey Anti-Eviction Act protects residential tenants from losing their homes through no fault of their own. The Act applies whether or not the tenant has a written lease. The Act does not apply to tenants of owner-occupied homes with two or fewer rental units; units set aside for developmentally disabled members of the owner’s immediate family; and hotels, motels and guest houses.
The laws protecting tenants from eviction apply throughout foreclosure proceedings and continue to have effect even after a new owner buys the property.
Who to Contact
The Department of the Public Advocate would like to hear from any tenants who have received notification that they must vacate their apartments due to a foreclosure. If you feel that you are at risk of being evicted from your rental home because of a foreclosure, please contact:
Department of the Public Advocate
Office of Citizen Relations
609-826-5070
Legal Services of New Jersey
888-576-5529
New Jersey Tenants’ Organization
201-342-3775
Yet again New Jersey proves itself to be superior to other states.