Can I not assume lease of non-owner tenant, foreclosure?

Question

I'm in due diligence period for a SFH with carriage house.  House is  FNMA foreclosure and tenants are not the owners but would like to stay.  Rent is $1850/mo -- well below market rent of $2500 - $2700.  Primary house lease is for 10 months after closing.  Carriage ends only a couple of months after close date.  Good tenants.

I'd like not to assume the lease.  Id like to use my own lease and renegotiate rent with the tenants.

I'm getting pushback from FNMA, so I'm thinking I should adjust my slightly more than the lost rent.

Any thoughts or suggestons?

Thanks,
Rick

Steve Babiak · Answer

Get familiar with the "Protecting Tenants at Foreclosure Act" passed during Obama's first term.  You become their new landlord with those existing leases, at least for the time being.

Rick Baggenstoss · Answer

Good advice.  I think they're both (main and carriage) well below market value, but it might be difficult to argue.   I'll do as you suggest and look at the relevant tenant foreclosure laws.

Also, I think after closing, I'll sit down with the tenants and see what we can work out.

Thanks,
Rick

Joel Owens · Answer

Have you looked at the landlord tenant foreclosure laws??

They were recently extended. There are conditions tied to honoring an existing lease. The lease has to be arms length and not way below market.

Example a son is being foreclosed on so he writes a lease 2 months before foreclosure for his mom for 400 a month when going rent is 1,000 for the area. This kind of thing won't stand up in court under the landlord tenant foreclosure laws.

If the lease is valid and signed for a year etc. at market rates then typically you have to honor the lease unless you are going to live in the property and then you have to give notice etc. If the tenants had a 1 year lease but now are on a month to month after that then you can get them out.

Basically read the landlord tenant foreclosure act and you will see all the details.

What is the condition of the inside of the house for 1,850 a month?? If it's thrashed or worn down you will have to put thousands into it to get it rentable for that top tier rent price of 2,500-,2700. So you could recover the difference in a matter of 3 to 6 months.

No legal advice.