Can a Tenant Withhold Rent if the Property Is in a Foreclosure?

Can a Tenant Withhold Rent if the Property Is in a Foreclosure?

Landlords and tenants face challenges when a house or apartment is in foreclosure. If the landlord fails to make the payments for a rental unit, the lender may initiate the foreclosure process. Foreclosure laws differ by state and county. In general, the house or apartment is sold at a foreclosure auction in the county where the residence is located. If no one offers the minimum bid, ownership of the house or apartment reverts to the lender. A tenant usually faces consequences if the rent is not paid whether or not the house is in foreclosure.

Tenants Knowledge of the Foreclosure

    Tenants arent often aware of a foreclosure until a notice about the auction is posted on the residence. If a tenant suspects a rental might face foreclosure, the tenant should contact the county recorders office in the appropriate county. Notices of defaults are recorded prior to the auction. Sometimes the lender cancels the foreclosure and the landlord retains ownership.

Talk with the Landlord

    Discuss the foreclosure with the landlord. The landlord is responsible to maintain the rental house or apartment until the residence is sold at auction. The tenant pays the monthly rent to the landlord until the auction. If the landlord is unable to maintain the residence or provide services listed in the rental agreement, he may allow the tenant to break the lease or move out early without penalty. The landlord may reduce the rent because of the inconvenience to the tenant. In some states, a tenant may use the security deposit to pay the rent after the rental unit enters the foreclosure process.

After the Foreclosure

    When the lender or the highest bidder takes ownership of the property, the tenant pays rent to the new owner. In many states, the new owners must honor the existing lease, allowing the tenant to remain in the residence until the end of the lease. Usually the landlord must issue a 90-day notice for the tenant to move if the tenant has a month-to-month rental agreement. If the new owner intends to live in the house or apartment, a 90-day notice is usually required. The new owner returns the security deposit when the tenant moves out.

Cash for Keys

    If the new owner wants the tenant to move quickly, he may offer money in exchange for the tenant to vacate the house or apartment. Cash for keys is the name for this agreement. The tenant and new owner develop a written agreement describing when the tenant will move and the compensation paid by the new owner. Often the compensation is the sum of several months rent and moving expenses.

If Rent Isnt Paid

    If a tenant doesnt pay the rent prior to the foreclosure auction, the landlord may evict the tenant. If the tenant doesnt pay the rent to the new owner after the auction, the tenant faces eviction. It is important for the tenant to contact the new owner and ensure the owner knows the tenant occupies the house or apartment. The tenant should keep careful records to show the new owner that the rent is paid in full and on time each month.



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