Tenants Are People Too! What Renters need to know about Foreclosure.
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.
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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.
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