If you’re a tenant in a property that is foreclosed on, what are your rights? I recently answered this question from a reader, and it appears that the answer is different across the country.

I received this email from a reader in Michigan today:

“Cynthia writes: I recently read one of your responses to a renter who is currently renting a home that was foreclosed on. We are dealing with this issue more and more.

I am in Michigan and when a tenant signs a Lease with a homeowner, when that home gets purchased, normally the new owner is aware there is a tenant and the tenant has rights. The grey area here is what happens when a bank purchases the home and there is a legally binding Lease Agreement?

We are pushing for Tenant rights here to be spelled out. Who becomes responsible for paying the security deposit back? Tenants here are being told to continue to pay the rent even when a foreclosure notice has been posted on the home.

This is a huge mess that has put all these questions into the “grey” area. I did not see any of these things addressed and don’t know what the entire content of the senders’ letter was. I think there is a grey area here and when you purchase a foreclosed home or a home at auction the general word here is “Buyer Beware”, as you are purchasing a home and any leins or contracts that are attached to it. What is your thought on this?”

My thoughts are that I don’t know how this is handled across the country. From what I’ve been hearing, tenants may have 30 days to get out of the property. What happens to their security deposits, last months’ rent, etc? My guess is it goes into the large black hole of bankruptcy, or foreclosure, depending on what happens to the landlord. In other words, the tenants get the very short end of the stick.

In some places, I’ve heard that tenants have to be out within 24 hours of a foreclosure sale. Foreclosure can shut off all rights the tenants have in a property, wreaking havoc with their lives. Lenders, for whatever reason, would rather sell a vacant property than one with tenants in it.

I’d like to know what happens to tenants in a foreclosure situation in different parts of the country. Please weigh in with your knowledge and thoughts.

We’ll also be working here to compile some information. As soon as we have it, we’ll post it.

Published: Oct 2, 2008