What Happens to Tenants When a Property is Foreclosed

What happens to tenants when a property is foreclosed? This may be a scary question to think about, especially if you’re caring for a family. But know that as a tenant, you have rights.

Read all the details here.

Introduction

As a tenant, you sign a lease agreement to rent a property for a specified amount of time. You know it is not permanent, but this is a place you can call home for the timeframe allotted. You pay your rent on time, you care for the property as if it were your own, and you feel confident and secure in your rental home.

Then one day you learn that your landlord – the owner of the rental property – has been unable to make the mortgage payment on the property. And, the bank has decided to move forward with the foreclosure process to take back the property.

What are your rights as a tenant? What happens to tenants when a property is foreclosed?

What is a Foreclosure?

When your landlord purchased the rental property you are living in, he or she did so by taking out a mortgage with a lender or bank. Until that mortgage is paid in full, the bank is technically the owner of the property. In a way, your landlord has the property from the bank sort of like you do as the renter. Just like you have to pay your rent on time to remain living there, your landlord has to pay a mortgage payment to keep possession of the property.

When the landlord fails to make the mortgage payments to the bank, the bank can then pursue actions allowed because of the default. Most times they will try to work things out with the landlord, but when that is not possible, legal actions are often the next choice.

Moving forward, the lender will file a lawsuit and a Notice of Default (or lis pendens) will be issued. This lets the landlord know that legal action will commence further if the debt is not paid. He or she has about 90 days to take action – and avoid foreclosure.

Several options may be used to avoid the foreclosure going through or pay off the loan. But, if it does, the property will be put up for sale at auction.

Landlords typically won’t stop making their mortgage payments just because and leave you in a situation. There is usually something bigger in play – an unforeseen circumstance – that leads to the default. It could be the result of too much debt, a medical emergency, losing employment, natural disaster, an increase in mortgage payments, and more.

Regardless of the reason behind the foreclosure, you, as the renter, are the one who receives this unexpected news and must adjust accordingly. So, how does this affect you as a renter in Los Angeles? Let’s take a look at what the laws state.

What the Law Says to Los Angeles County Renters

If you are a renter in Los Angeles County and your landlord is facing a foreclosure on the property you are renting, then you have rights.

According to the Los Angeles Housing and Community Investment Department, the Rent Stabilization Ordinance (RSO) that was put into action in 1979 protects tenants from evictions unless it is based on legal reasons permitted under the ordinance. Evictions based on foreclosure of the property are not permitted. According to this ordinance, even if a foreclosure takes place and there is a new owner of the property, it does not change the terms for the current tenant.

Rental properties that are outside the RSO fall under protection from the Foreclosure Eviction Ordinance (No.180441) that was enacted by the Los Angeles City Council in 2008. It protects tenants from banks and lenders who foreclose on rental properties (single family or multi-family properties) from being evicted. In fact, the only way that these tenants may be evicted is for legal reasons stated in the RSO.

Your Responsibility as a Tenant

If you are a tenant who has received word that the property you are residing in is facing a foreclosure, you may be wondering what your responsibility is – what are you supposed to do?

First, it is imperative that you understand the foreclosure affects the property where you reside, but it does not affect your lease agreement or right to reside there. If you receive notice from the bank that the foreclosure has taken place and there is a new rightful owner, you should contact the new owner as soon as possible to discuss things like where to send rent payments or who to contact should the property require maintenance.

You do not need to move or find another place to live. The lease agreement you have signed with your landlord still remains in effect when the new owner takes over. The length of time left in your lease, your rental fee amount, and so forth will all remain the same. The only thing that should change is who you should contact regarding the property and fulfilling your end of the lease agreement.

Sometimes, though, things don’t work out like they are supposed to. It could be a new owner trying to take advantage of your vulnerability or it could be a new owner that is unfamiliar with the laws in the area. But, if you are served with a summons and complaint for an unlawful detainer, then you need to contact an attorney immediately. You only have 5 days to respond.

Should you feel as though your landlord has violated your rights under the RSO, contact the Rent Stabilization Program at (833) 223-7368 or the Los Angeles rent control hotline(213) 808-8888. Or you may find that having an attorney on your side is a better way to protect your rights.

Hire an Attorney

There are laws that protect tenants from a state level in California. And there are those that protect tenants at a local level in Los Angeles County. When it comes to evictions and foreclosures and making the transition, the ordinances, rules, and laws can get a bit cloudy. And, if you are not sure what you should expect or how foreclosure affects you, you may find that your rights are violated.

An attorney will walk with you every step of the way to ensure you have a roof over your family and that your legal rights are protected.