What to Anticipate When Your Landlord Faces Foreclosure
My boss, Carlos Aguilar, real estate agent extraordinaire (he pays me to say things like that), receives countless emails and calls from renters whose landlord’s are being foreclosed upon, and they are left in the dark, trying to figure out what they need to do. One such email he recently received was from a woman who found out her landlord was being foreclosed on when the Home Owners Association for the complex called her and told her. And since the landlord was no longer paying her HOA fees, the HOA requested that the she pay THEM her rent.
I can imagine that it’s quite unnerving when out of the blue, you get a call from someone you don’t know telling you all this. It’s the kind of call where you hang up and say, “What the F*CK?” Then you try and contact someone…anyone who might have some information on what’s going on, and no one can tell you a thing. So, if you are a renter and your landlord is being foreclosed on, let me help ease your mind. This article is about what will happen and what you need to do.
Finding Out
A few days after the Trustee Sale (foreclosure) occurs, someone will be knocking at your door inquiring about whom you are and the names of any other occupants. This person represents the bank that now owns the property you are occupying. If you are not home, they will post a notice on the door asking you to contact them. This notice may sound harsh, and may even sound like an eviction notice, but it is not. It is simply an initial attempt to impress upon you the seriousness of the situation and to make you aware that the property is now owned by a bank and their purpose is to gather information. The new owners need to know who you are and what your intentions are. For the most part, they will want the property to be vacant as quickly as possible. The one exception to that is Fannie Mae, who, if they are the new owners, may give the option to some tenants to continue to rent the property. But almost all other lenders are not willing to rent the property and will assign it to an eviction attorney to begin the eviction process.
Eviction Notice
The eviction attorney (or someone representing them) will present you with a notice alerting you that you have 90 days to vacate the property. Depending on how fast the eviction attorney begins the case, this notice may not come for weeks (sometimes even up to a month) after the house has already been foreclosed on. NOTE: Despite what your former owner’s HOA tells you, you DO NOT owe them any money.
The Bank, AKA the new owner, will usually offer you cash to entice you to move out and waive the 90 day eviction period. The sooner you move out, the more money the bank is willing to offer you to help with your relocation costs. Typically, if you agree to move out in the first 30 days, the bank may be willing to pay you a fee of $3000-$4000. If you move out within 60 days, this amount is reduced substantially, and if you move out towards the end of the 90 days, you most likely will not be offered any money. The reason the banks are willing to offer you a relocation fee is to offset the cost of having to pay legal fees to have you evicted. And the sooner you are out of the property, the sooner they can put it on the market for sale. And they are EAGER to sell those properties.
Whatever you do, don’t play dumb and pretend like nothing is happening (see The Life and Time of an REO Field Agent: Part III). Talk to the bank, let them know what you intend to do. Will you take the full 90 days to find a new place and move? Or will you take the cash for keys and move out sooner? Depending on how much the banks offer you in the form of cash for keys, it might make sense to get out fast if you are able. If the amount is minimal, it makes sense to use those 90 days of living rent free to search for a new place.
Any way you slice it, it’s not your fault that your landlord got foreclosed on. Don’t take the eviction as a personal attack. It is without a doubt a large inconvenience, but the sooner you address the situation, the sooner you’ll be living in a new place. And who knows, maybe you will even make out with a little extra cash in the process.
By Andrew Brentan
June 10th, 2009 at 8:57 pm
I was not aware of the incentive a bank pays to get you to move out early. It makes perfect sense, but I’ve never heard that before. Thanks for the explanation of the process – huge inconveinence, but like you said, it’s not the renters fault and it shouldn’t be viewed as a personal attack.
June 11th, 2009 at 1:44 am
You’re providing excellent service giving people the information they need. Many of the other agents try to hide as much information from the public as possible. It is only with complete transparency that the greater good can be achieved. Great article!
Steve’s last blog post..$196,000 :: 3024 E Powell Way, Gilbert AZ, 85298
June 11th, 2009 at 1:40 pm
Lot’s of tenants stop paying rent when the foreclosure notice gets taped to the front door, pushing the landlord further into debt. Have you checked out NoPayTenants.com with zillions of tenants that owe money and I’m sure lots of them had something to do with the landlord foreclosure?
June 11th, 2009 at 4:15 pm
I have never appeared in such a horrible situation but it looks like it happens a lot and people should be really aware of this fact. That is a piece of very useful information that will prevent people of getting into the trouble or at least they will know what to do.
June 11th, 2009 at 4:32 pm
Missy, you are wrong. Once the landlord is being foreclosed on, the tenant is NOT repsonsible for paying rent anymore because the property no longer belongs to that landlord. It belongs to the bank. Therefore, tenants are not pushing landlords further into debt. If renters are not making their payments while the landlord still owns the home, then that is a different story all together and those renters are then liable to be evicted.
June 11th, 2009 at 6:40 pm
Great story. I did not know the banks would be offering money to the tenants. I am actually going through this situation right now with one of my tenants. Now we are on to finding a new house.
June 12th, 2009 at 5:03 pm
Didn’t the Fed recently pass some tenant protection laws about foreclosure?
Charles’s last blog post..Las Vegas Housing Market: Foreclosures Down, Sales Up
June 17th, 2009 at 1:26 pm
I was not aware of the incentive a bank pays to get you to move out early. It makes perfect sense, but I’ve never heard that before.
June 18th, 2009 at 5:05 pm
Hopefully now that unemployment numbers are finally going down instead of up things will get better and soon. Thanks for the write up.
Panama Guide’s last blog post..Panama Canal Cruise
June 19th, 2009 at 3:31 pm
Great article Andrew. I’m glad that I have never found myself in this situation! I do agree that taking the cash and getting out quickly would be the best. But also if you can live rent free, this allows you to save up money for a move as well.
Carl’s last blog post..Washington Land for Sale | 1.04 Acres in Rimrock Meadows
June 20th, 2009 at 9:43 am
What a great piece of information…This is something that many people should know about , I will spread this message on my own site. I have written quite a few articles on the Foreclosure process, yet in regards to homeowners, not tenants …I’m sire this will be very helpful to alot of my readers !!
Thanks for the info
Patrick
Foreclosure Prevention’s last blog post..Does it Pay for Me to Refinance my House or Not ?
June 20th, 2009 at 1:53 pm
I never knew about banks offering incentives for renters to leave the property early. This advice can save a lot of renters the pain of facing a landlord’s foreclosure.
Mark’s last blog post..American Express CD Rates
June 23rd, 2009 at 9:26 am
Really nice post, and by the way, nice blog. Thanks for sharing.
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June 24th, 2009 at 8:39 am
You need to verify if the house is really in foreclosure.Ask your local Title Insurance company or check with the courthouse and see if a Notice of Default has been filed.
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June 24th, 2009 at 11:10 am
It’s become common practice in the UK for the new owners of the property to provide a minimum 6 month tenancy to allow the tenants time to move on. Its not enshrined in law but it is the norm.
June 25th, 2009 at 4:29 am
Perhaps, if it is really foreclosed by the bank and if I really like the place I will tell the new owner to continue my rental to them, but if they will going to use the property for other purpose I will just grab the chance to vacate sooner for they will give more money for settlement.
July 12th, 2009 at 8:44 am
I would say that landlords need to take care of it, not the renters as a renter is a law obedient person who pays money and want to live without any problems.
September 30th, 2009 at 3:07 am
I agree with Abbey. The landlords should take care of it. The renters should get an assurance and live without any problems
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November 16th, 2009 at 11:03 am
I like this blog very much keep it up this good work
November 17th, 2009 at 12:28 pm
I agree.. its not the renters fault at all