Defaulting Landlords
What are the rights of renters when the landlord has defaulted on a their loan for the property? The typical foreclosure home nowadays is often owned by an investor or speculator who was hoping to turn a profit from th erents. They counted on the rising rents and low interest rates to cover mortgage payments. Some investors caught in the slump of the housing market and rise of interest rates, cannot sell the home to cover the costs.
Many renters lose their leases upon foreclosure. The rule in many states is that if the mortgage was recorded before the lease was signed, the foreclosure wipes out the lease. This doesn’t mean that the tenants holding a lease have to leave immediately, but become month-to-month renters, and can be terminted with proper notice, usually within 30 days.
Tenants who refuse to leave face an eviction lawsuit. The impact of an eviction on a tenant’s ability to find future housing can be devastatnig. No law prevents a future landlord from rejecting tenants with evictions on their record, even when they are innocent victims of foreclosing.
Tenants who participate in the federally financed Section 8 program will see their leases survive, as will tenants in New Jersey, New Hampshire, the District of Columbia, and Massachusetts. New owners cannot evict lease-holding tenants unless the tenant has failed to pay the rent or violated the lease terms.
A landlord who defaults on a mortgage sets in motion the loss of the lease, violates this covenant and the tenant can sue for the damages caused. Small claims court is the place to bring a lawsuit. The tenant can sue for moving and apartmetn-searching costs, application fees, and the difference between the new rent for comprable rental and the rent under the old lease.
