Can a Tenant Refuse to Break a Lease if the Property Is in Pre-Foreclosure?

Pre-foreclosure refers to the legal procedure that is undertaken to foreclose a house when a mortgage holder fails to make payments on a mortgage. The pre-foreclosure process takes time because it involves mandatory notices which the lender must give the mortgage holder and court hearings if the mortgage holder seeks legal protection to stop foreclosure. Foreclosure inevitably affects tenants who are usually asked by the lender to break the lease. The law has clear provisions on how a lease can be broken when a property is in pre-foreclosure.

Helping Families Save Their Homes Act

In 2009, the Helping Families Save Their Homes Act was signed into law by President Barack Obama. This law states that a lease will remain in force even after a house has been foreclosed. A tenant living in a foreclosed property will continue occupying it. He can only be evicted if the new owner of the property intends to occupy it. The new owner is required to give the tenant a 90-day notice of eviction.

Right to Know About Possible Foreclosure

The Helping Families Save Their Homes Act states that a landlord should inform a tenant of a possible foreclosure if he has clear indications of this possibility. This includes if he has received a foreclosure notice from the bank. If the tenant can prove that the landlord had clear information of a possible foreclosure and failed to disclose it, the tenant can sue him in court for damages. The tenant will still have to move out within 90 days if the new owner wants to occupy the house.

Abiding by Lease Terms

If the tenant does not want to break his lease during the pre-foreclosure process, he must abide by the terms of the lease in full. In particular, he must pay rent to the landlord promptly even if it is clear that the landlord is about to lose ownership of the house. The landlord remains the rightful owner of the house and must receive all rent until the house is sold. When the house is repossessed, the tenant pays rent to the new owner.

Cash-for-Keys

When banks repossess houses from mortgage holders, their main interest is to sell the houses to other people rather than rent them out. This is because their core function is lending money. Since the law requires them to give tenants time to vacate, banks usually give a financial incentive for the tenants to move out. They offer the tenants money to enable them to relocate. This practice is called cash-for-keys and it enables banks to sell the repossessed houses faster.

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