Q: I live in a house that had a lis pendens delivered for foreclosure with 20 days to respond. I have no interest or involvement with the owner or the house. Aside from moving out as soon as possible is there anything else I have to do? Do I have any legal issues to worry about?
A: Unfortunately the financial and mortgage crisis has been a wave that has taken many innocent people along with property owners and lenders.
You, it seems, are a renter in a property that is in the process of being foreclosed. The owner of the property you live in has either fallen behind on his payments to his lender or has simply stopped making the payments.
Now the property’s lender is trying to recover what it can by foreclosing on the property to sell it off and get the loan repaid.
You on the other hand may have a lease with the owner of the property. That lease obligates you to make payments to the landlord for your rent. During normal real estate markets, a lender forecloses on a building or home and wants the place empty for resale purposes. The lender doesn’t want to be in the business of being a landlord. So the lender moves to foreclose and notifies all occupants of the property of the foreclosure proceedings and follows through to evict all occupants.
Recently, however, more and more lenders are coming to the realization that tenants are good for properties and are a good source of income for the thousands of properties these lenders are foreclosing on.
Where does that leave you? There are several possibilities:
If you live on a month-to-month lease at the property and the property owner has effectively abandoned the building, most people in your shoes do what you are doing now and pack up their things to find another place to live.
But if you like where you live, you might want to see if the lender wants you to stay at the property. You should contact the lender directly to see if the lender would want the rent payments to continue or if there is some way the lender can finance your purchase of the property.
Until the lender forecloses on the property, the property is still owned by (and managed by) the current owner. But lenders have the ability to take possession of the property without becoming the owner by getting the court to allow them to operate the building until the foreclosure is final. If the lender goes this route, you may find that the lender will be eager to keep you at the property.
If you have no lease but lived in the property as a guest of the owner of the property, you shouldn’t have anything to worry about with either the owner of the property or the lender when you move out. You’re free to move out whenever you have to or want to.
If you are a tenant on the property, your lease continues to be valid until it is canceled through the foreclosure process. In theory, if you move out early, the current owner could sue you for defaulting under the terms of your lease. But most owners who are going through foreclosure stop being landlords and abandon their responsibilities as landlords and walk away from their properties.
If you’re in a situation where your landlord no longer collects rent and is nowhere to be found, and you receive court papers that order you to vacate the property, you should be able to leave the property without worrying that someone is going to sue you down the line.
However, if your landlord continues to collect rent from you and is actively managing the property, you need to review the documentation you received from the court to determine if that documentation is sufficient to cancel your lease and allow you to move out without creating a Catch-22 situation for you in which you move out and the landlord sues you for non-payment of rent.
In some instances a lender will notify a tenant that the owner is going through foreclosure and instructs the tenant to forward all future rental payments to the lender.
As a tenant, you need to make sure that the information given to you by the lender is accurate and that you do, in fact, need to forward rent payments to the lender. The lender usually will have documentation that the building owner signed authorizing the lender to collect rents from the tenant if the building owner is in default under his loan.
It all goes back to the paperwork. To figure out whether you’ll have trouble with the owner if you move out, you’ll need to read through your lease and the documentation surrounding the foreclosure. In addition, you’ll need to talk to your landlord and possibly the lender to get more information.
If after doing all this you are concerned about litigation, please consult with a good real estate attorney.
Jan. 19, 2009.