Seems like an obvious statement to even the most casual observer. However, renters occupying properties in foreclosure seem to be looked at through a different lens. In Nevada where I live, for example, renters do not have to be told their rental home is in foreclosure. They don’t even have the right to a grace period to look for a new dwelling once the sale is final.
After the property has been sold, the tenant receives a 3 day notice (heck of a grace period, right?) telling them they are being evicted. This is probably the first they learn of the foreclosure action. After they receive their eviction notice, they are sometimes granted 20 days to answer the process. If the new owner, however, decides to shorten the time period through a court order, the 20 days could melt into 10 or less.
Imagine how you’d react to this joyous news. One of our insurance clients had such an experience.
Two years ago he bought a home via a three year lease option. During the two year period the seller stopped making his mortgage payments. He didn’t stop accepting the monthly checks, he just stopped paying for the home.
Any and all mail regarding the subject property were mailed to the seller’s home address so our client never saw a notice of default or any other type of document that may have alerted him. Not only did our client lose his up-front money but all of the payments he had made.
Ouch, That Kick Hurt
The real kicker came when he received his 3 day notice on a Friday. He had to scramble like a mad man to find a new home, get moved, go to work, keep the kids in their school, etc. The lender that foreclosed was one of those that took the 3 day wording seriously and enforced it.
I fully understand the process may be more lenient in other jurisdictions. However, I’d bet most mirror Nevada to a close degree. It is immaterial the legislators are just now looking at helping renters because the proposed legislation may never see the light of day.
I am no bleeding heart liberal but fair is fair. If you are at least one level above a slum lord I would think you’d care enough about your tenant(s) to tell them when the NOD has been filed. This gives them almost 4 full months to find another home.
Yes, that is four months of rent down the drain instead of in your pocket and the argument can be made that their rent money might help you out of your hole. Reality says it won’t but some would argue it may be the key to turning around a bad scenario. To that I say, come on.
The renter, in most cases, also loses any deposit he or she may have made. This is another ouch type of kick. Compounding those ouch kicks is the fact the renter can’t sue the landlord for fraud since the landlord actually owned the home up to the time of sale. However, some jurisdictions are starting to turn the fraud microscope up a notch or two in these cases. Again, immaterial because that street may close before it becomes paved with case law.
Renter Tips
Since BiggerPockets enjoys a wide readership, I thought I’d include renter tips. I know if I already wasn’t a home owner, I’d read this type of site to learn about real estate investing. Hence, to all the renters out there, take heed.
We are lucky in our county in that the County Recorder website is an easily navigable site and anyone looking for a Notice of Default on a particular property can find it in 3 clicks. I don’t know about the rest of the country but I would guess the same is true. If it isn’t, it would be worth a trip to the Recorder’s office BEFORE you plunk down rent and deposits.
If you don’t know how to access the records, ask one of the clerks. Unfortunately, the Recorder’s site won’t tell you if the property owner is behind in their mortgage payments. They only record after the fact.
However, you can still look for another document that may give you a tip. If the property owner is behind in their property tax, the county assessor will file a lien against the property. The lien is filed with the Recorder. If such a lien exists, you can surmise other problems exist.
You also may want to avoid the online classified home rental sites like the plague. I like Craigslist but it has been getting a bad rap lately because of the number of rental scams being offered through this great free service.
Another reason to avoid online rental offers is you want to meet the owners/landlords in person. These online “opportunities” sometimes don’t produce face to face meetings. The reason, the person doesn’t own the home.
One more tip that a problem may be afoot is if the owner tells you he is moving into a smaller property and just recently listed the home as a rental. Some call this downsizing. Nothing wrong with downsizing except the general scenario is a property owner doesn’t go from big to small just to go from big to small. Yes, it’s happened it in the past and will happen in the future but in this day of real estate carnage, that may be a huge warning sign.
A Free Way To Get Legal Advice
Our county has a Legal Services office available to the public. It is manned by real live lawyers who answer legal questions. If you have any questions about your lease, how to get info on the proposed rental, etc, call and make an appointment. This is a free service in our county and it may be free where you live. If not, it’ll be quite inexpensive. Truth is, even if it costs $50, $50 is cheaper than paying the first and last monthly payment plus deposit only to find out a month or two later you are being evicted.
Personally, I’d do a little sleuthing before I gave up rental dollars. Talk to the neighbors, ask the local police about the frequency of calls to that house or that neighborhood. Drive through the neighborhood early in the morning and around 8 or 9 at night. I know this isn’t legal advice but it is free.
In the meantime, get familiar with your local tenant’s rights laws. Some office in your county hierarchy will have a copy and they are probably posted online as well. This means you never have to leave your home to become an informed tenant.
What caught my eye about this issue was an article in our local paper that said about 40 percent of renting families in the U.S. will face eviction because of the foreclosure on their rental home. The statistic is a product of the National Law Center on Homelessness and Poverty. If it is anywhere near accurate, the above advice may just come in handy.
Photo Credit: tanakawho
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The issue of eviction of tenants is getting quite a bit of attention here in Nevada. However, politicians are once again reacting in a knee-jerk manner. The Nevada Assembly has proposed changes to the eviction laws (AB 189) that will make it much harder on landlords who are not facing foreclosure. The bill effectively triples the amount of time it takes to evict someone.
“Assembly Bill 189 which was introduced in the Nevada Assembly on Feb. 18, would make significant changes to Nevada’s eviction laws. For example, existing law includes procedures for summary eviction of certain tenants who fail to pay rent within five days after service of a written notice. Assembly Bill 189 would extend the five-day period to 10 days after service of the non-payment notice.
Existing law also provides that, under certain circumstances, a landlord may obtain an order from the court directing the sheriff to remove the tenant within 24 hours after receiving the order. However, Assembly Bill 189 provides that the sheriff may not remove the tenant earlier than 5 days after the sheriff receives the order. Assembly Bill 189 also provides that if the court issues an order for summary removal of the tenant, the order will not take effect until noon on the fifth day after the order is issued. Moreover, the order will not become effective if the tenant tenders payment of the rent and submits proof of the payment to the court before the five-day time period expires.”
The last home we leased out in Las Vegas really enlightened me on some of the things taking place…
Some of the prospective tenants for that property told me:
They were paying rent to somebody who did not even own the home while the home was being foreclosed on.
Somebody on Craigs list was advertising a home for lease and to send the deposit check out of the country…
Another tenant had 5 days to find a new place because their current place was foreclosed on.
Don’t even get me started on some of the rental contracts I’ve come across where owners have pulled them up from who knows where…
Anyways… good tips and the Clark County, NV website has step by step instructions on how to find out if the home you are renting (or planning on renting) is in foreclosure. You can also see who really owns the home.
And yes.. AB 189 is a knee jerk example of politicians getting involved in something they have little clue about. The excuse is to allow more time for certain people to pay their rent on time before being evicted…
I’ve never known a landlord who immediately evicted somebody because the tenant was six days late in paying… unless it was a constant problem and a good excuse to get rid of bad tenants.
In other words… AB 189 if passed will only benefit tenants looking to game the system IMO.
On another note.. I’ve seen bad behavior on both sides of the deal. The best policy is to treat your rental home as a five star hotel and tenants as five star guests.. works wonders for me.
Paul Francis, CRS’s last blog post: Report suggests 55% of Nevada Homes are worth less then their Mortgage
The Nevada Assembly has proposed changes to the eviction laws (AB 189) that will make it much harder on landlords who are not facing foreclosure.
Also I’ve never known a landlord who immediately evicted somebody because the tenant was six days late in paying… unless it was a constant problem and a good excuse to get rid of bad tenants.
In other words… AB 189 if passed will only benefit tenants looking to game the system IMO.
I always thought the rule was 30 days notice. I never quite understood the three day eviction time period. The laws should change for those who are renting out the property and have no contact with the lenders.
What about landlord rights? Our property recently had a foreclosure notice posted on it, and we didn’t know about it until our tenant informed us. We had no idea because we’ve just started a deed-in-lieu process with our lender, after being after our request for loan modification was denied 3 times. We have only one rental property, and this was a house that we actually lived in for 3 years before we had to relocate to another state. Our lender explained that it takes 90-120 days for them to make a decision about our deed-in-lieu request, but said that they will not continue with the foreclosure until they make this decision. Now our tenant is refusing to pay the rent, but does not want to vacate the property either. We’ve left them alone for a month because we figured their security deposit will cover the one month rent, but our property manager said that the tenants intend to stay until the foreclosure pushes through. The tenant accused us of pocketing the rent, and tried to negotiate for a lower lease which we refused (the reason we’re defaulting is because the rent they pay covers less than 2/3 of our monthly payments). They have no idea what our situation is right now and, believe me, a foreclosure and a severely damaged credit rating is not something we would voluntarily go through given any other options. What are our rights as landlords in this case?