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Rights of Renters in Foreclosed Homes
If a landlord defaults on his or her mortgage, and the property is foreclosed, the consequences for the property's renter can be dire.
When the landlord defaults on the mortgage, the bank becomes the owner of the property, and usually seeks to sell it as quickly as possible, and takes little interest in the needs of the tenants who live there.
Under the law of most states, if the mortgage was recorded before the lease agreement was signed, foreclosure terminates the lease, and the new owner can evict the tenants with little warning.
This leaves a record of an eviction on the renter’s credit report. Future landlords can legally base a refusal to rent entirely on this record, regardless of the circumstances that led to the eviction.
Some tenants receive protection under federal law. Recipients of Section 8 housing vouchers can preserve their leases. Some jurisdictions (including New Jersey, New Hampshire, Massachusetts, and the District of Columbia) require the new owner to honor the lease. Tenants who live in rent-controlled jurisdictions or jurisdictions which require “just cause” for eviction may also be protected.
Tenants in states that do not afford such protections can sue their former landlords. Landlords have a legal obligation to protect tenants’ right to the “use and quiet enjoyment” of the property. Defaulting on their mortgage and causing foreclosure violates this obligation.
A tenant will be able to sue for the costs associated with finding a new place to live, and the difference in rent between the old and new apartments. However, if a landlord/owner is in foreclosure, they probably won’t have enough money to pay any judgment the tenant wins.
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