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A Foreclosure Guide for Renters - Part 1: what happens when your landlord doesn't pay his mortgage?
by Morph Expert: Sarah Logterman
Early one morning last year, my roommate and I were woken up by a loud knock on the door and were surprised to see a strange man standing there with a thick packet of papers in his hand. He handed it over, asked if the other unit in the duplex was occupied, and left. We had just been served.
Confused and uncertain, we read through the entire packet of legal documents we had just received and learned that our landlord had stopped paying his mortgage and that the foreclosure process for the house that we had lived in for two years had officially begun. There was to be a sheriff’s sale in a few months, followed by a six-month redemption period. There was no further information.
Would we have to leave? If so - when? And did we have to keep paying our rent? We didn’t have any of these answers.
Over the course of the next year, we slowly learned about our rights and our obligations as renters during the foreclosure process – and just how sticky the situation can get. I hope this information can help you navigate through the process if you find yourself in a similar situation.
What’s a Sheriff’s Sale?
As soon as a property owner misses a mortgage payment, their bank can initiate the foreclosure process – this begins with a sheriff’s sale. The sheriff’s sale is an auction where the property is put up for sale at the amount that’s owned on it, and it’s sold to the highest bidder – which usually ends up being the bank that holds the mortgage. However, the bank doesn’t technically own it yet…after the sheriff’s sale, the house is now in the “redemption period”.
What’s a Redemption Period?
The redemption period usually lasts for six months, and is the property owner’s last chance to reclaim his property. But he can’t get it back just by paying the amount of all his missed payments, he needs to buy it back for the full amount remaining on the loan. So clearly, this almost never happens. But the important thing to know about the six-month redemption period is that the original property owner still technically owns the property, and not the bank. This means that he can still rent it out, but more importantly for you, he still needs to maintain the property. All current leases are still in effect – both month-to-month and fixed term leases – along with all their stipulations.
The Landlord’s not paying his bills – why should I keep paying him rent?
Again, the property owner still technically owns the property, and your lease is still in full effect. So, even though you know full well that he’s not paying his mortgage payment, you still have to pay your rent in full and on time according to your lease. It might seem unfair, but that’s the way it is. He has to hold up his end of the bargain, and so do you.
However, an unfortunate side effect of foreclosures is a decrease in the service that tenants get from landlords that have either written off the property in their minds or don’t have the funds left to properly maintain the building. If there are serious repair issues, or if your utilities have been shut off because your landlord’s not paying those bills either, you can withhold your rent and file a suit against him until the problems are fixed. Smaller issues might just get ignored, though – so if something’s important to you, speak up. For example, during the redemption period on our duplex, our lawn went from being professionally mowed every week to being mowed by the landlord himself maybe once a month. We ended up not minding the longer grass, so we let it go. But later on in the redemption period, our bathroom sink faucet started dripping. My eco-conscience couldn’t let that one go, so I requested that it be repaired even though it wasn’t an emergency. They came out and put in a new faucet right away.
What about my security deposit?
You are of course still entitled to your security deposit, even if the bank takes ownership of the property before your lease runs out. Make sure to arrange with your landlord right away what’s going to happen with the deposits so that everyone’s on the same page. Landlords don’t usually transfer deposits over to the bank, so don’t count on getting anything from them. So get your deposit back from your landlord before he loses the property. Or, you can legally skip your last month’s rent in exchange for the deposit (assuming they’re of the same value), but you can only do this in a foreclosure situation. (This is because sometimes the property owner dips into the deposits to help pay the bills.)
As for the condition of the property, your landlord won’t care what’s going on since he’s about to lose it anyway, so this can work out to your advantage. It doesn’t mean you can trash the place though – that’s just bad karma. But you should still make sure to tidy up after you leave and make sure all your stuff is gone, just like you would in any other move. The way our landlord put it, we didn’t have to patch the nail holes in the walls or do any really deep cleaning – but if, for example, we hadn’t cleaned the tub in a month, we probably should. So just be mindful of how you leave the property – it is still a home, and someone will eventually live in it again.
By Morph Expert: Sarah Logterman, Office Manager & Property Management Specialist
Stay tuned for "A Foreclosure Guide for Renters - Part 2: What happens when the bank is my new landlord? Are they going to kick me out?"
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