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Tip of the Month October 2009 Tenant Rights When a Landlord Loses the Building to Foreclosure Submitted
by Maisa Jean Frank, J.D. Candidate, 2010, |
When
a landlord faces losing rental property to foreclosure, it is often a confusing
process for tenants. In
Sheriff’s sale. The sheriff
will hold a public auction for the property.
Often the bank that holds the mortgage bids at the sheriff’s sale.
Redemption period. After the sheriff’s sale, the owner
(landlord) generally has six months[1] to
sell the property or pay the balance to the lender and redeem the
property.
Postponement by Landlord. This
year, the Minnesota legislature enacted a new law (Minn. Stat. § 580.07, subd.
2) that allows owners of one to four unit properties classified as homestead to
unilaterally postpone the sheriff’s sale for five months. If the landlord exercises this option, the
redemption period will be reduced to five weeks. If your client lives in a duplex, for
example, be sure to check when the redemption period ends.
DURING THE REDEMPTION PERIOD
During this period, the
rights and responsibilities of the landlord and the tenant remain
unchanged. This means the tenant must
continue to follow the terms of the lease, including making timely rent
payments and giving proper notice to vacate; the landlord must continue to
properly maintain and manage the property.
Paying Rent.
The tenant should continue to pay rent to the landlord,
unless the tenant has received notice from the landlord’s lender that the
tenant should pay the rent to a “receiver” that the lender has appointed to
collect rent during the redemption period.
Minn. Stat. § 504B.178, subd. 8 allows a tenant
to withhold the amount of the security deposit from rent for the last month of
the foreclosure redemption period on the grounds that the security deposit
should serve as all or part of the last month’s rent.
New Leases. The landlord must
give prospective tenants written notice that the property is in foreclosure,
and can only legally enter into periodic lease agreements with a term of two
months or less, or a fixed term not extending beyond the redemption
period. (
“Cash for Keys.” Sometimes when lenders buy foreclosed buildings, they offer
renters cash
settlements in exchange for voluntarily moving out of the property at a
specified time. Lenders are not
obligated to offer any cash. Tenants
often use a cash
for keys
settlement to help with moving expenses.
AFTER THE REDEMPTION PERIOD ENDS
The new building owner must give the tenant proper
notice before requiring the tenant to move.
In May 2009, a law was enacted (P.L. 111-22) that requires all new
owners of foreclosed property to give all tenants, including those who do not
have written leases, at least ninety days’ notice of termination of their
lease, or fulfillment of the lease, whichever is greater. Tenant advocates will argue that a lender or
other purchaser is not an owner until the redemption period ends, and therefore
cannot give the ninety-day notice until the redemption period ends. Note that some lenders may try to argue that
the ninety-day notice period begins before the end of the redemption period.
Term
Leases. Leases for a fixed period of time that began
before the landlord received notice of foreclosure continue with the new owner
until the end of the lease. An exception
applies to new owners who intend to reside in the property or who sell to
someone who intends to reside in the property; they may terminate a lease
before the end of the term, but must still provide ninety days’ notice.
Month-to-Month Leases. The new owner must give month-to-month
tenants at least ninety days’ notice of termination. A month-to-month tenant has the right to end
the tenancy by giving the new owner proper written notice of at least a full
rental period (typically one month).
Paying Rent. After the
redemption period ends, if the new owner asks the tenant to continue paying
rent and tells the tenant to whom payments should be sent, the tenant should do
so in order to remain in the property.
If the new owner does not ask the tenant to pay rent, then the tenant
does not have to pay rent.
Section 8 Vouchers. Tenants with Section 8 vouchers
have similar rights as tenants with term leases when the property goes into
foreclosure, with the additional protection that only new owners who themselves intend to reside in the
property may terminate the lease early.
Upon receiving notice of foreclosure, Section 8 tenants should contact
their Section 8 office to ask about program-specific policies. In particular, moving out before the end of a
lease may cause a Section 8 tenant to lose his or her status.
Security Deposits. When the landlord’s interest in the premises ends,
the original landlord has sixty days to either transfer the deposit to its
successor in interest and inform the tenant of the amount transferred, or
return the deposit to the tenant, with interest. If a tenant fears she will not receive her
deposit back, she can withhold the amount of the deposit from her last month’s
rent as discussed above.
RESOURCES
HOME Line: www.homelinemn.org; 612.728.5767 (phone
advice and information for tenants)
LawHelpMN.org: www.lawhelpmn.org (fact sheets on various
housing topics)
National Housing Law Project:
www.nhlp.org (resources for tenants and
their advocates)
National Low Income Housing
Coalition: www.nlihc.org (“Renters in
Foreclosure Toolkit” is particularly
helpful. www.nlihc.org/template/page.cfm?id=227)