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.

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

About Author

Joshua Dorkin

Joshua Dorkin (@jrdorkin, Google+) founded BiggerPockets.com when he saw a need for free, trustworthy information about real estate investing online. Over the past 12 years, Josh has grown the site from self-funded hobby to full-time job and passion. Today, BiggerPockets brings together over 600,000 members, housing the world’s largest library of real estate content, iTunes’ #1 real estate podcast, and an array of analysis tools, all geared toward helping users succeed.


  1. Richard Warren on

    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.”

  2. 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

  3. 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.

  4. 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.

  5. 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?

    • Your rights as a landlord are those rights stipulated in your lease agreement with the tenant. The tenant is paying for the right to live there. If they don’t pay, start eviction proceedings IMMEDIATELY. Your situation with your lender is immaterial until the point you can’t offer the property up for a full month of the lease. Basically a Notice of Default is just early notice that the lender intends to pursue foreclosure. In different parts of the country right now that’s taking +/- 8 MONTHS.

      YOU should tell the tenants when an auction date has been set if you’re unable to conclude negotiations for the Deed-in-Lieu, or if you’ve concluded Deed-in-Lieu negotiations what that date of transfer from you to the lender will be.

      The tenant owes rent to you until that date, why should they get to live free? I went through this personally with my now-wife’s home 7 years ago. The tenant didn’t figure they should pay, and got to live there for 6 months until the foreclosure auction. If the tenant had paid for those 6 months, we might have been able to address the delinquency with the lender (partly due to their paperwork fault, NEVER deal with Dovenmuehle mortgage servicer).

  6. It takes a LOT longer than 3 days to get someone out of a house. This varies widely by state and county, but even in Texas, which is the quickest place to evict that I am familiar with, it often takes at least 2 weeks, because the days are business days and the tenants have a right to respond, and then get a hearing, etc. The 3 days is how long they have to respond to the notice.

    In Florida last year, it was taking a month to get someone evicted even in the easiest of circumstances with the most egregious tenant behavior (tenant has not paid rent in months, has no phone at which to be contacted, refuses to contact us to try to work anything out, has no job, no prospects for a job or being able to pay the rent in the future, AND was seen selling AK-47s out of his trunk at the property by a tradesman). I did everything I could to speed up the process in this case because the property in question is behind a house I was also renting- to a family with small children! It still took a month. The tradesman would not talk to the cops out of fear and there are plenty of tenant protections in place to slow down an eviction. I was terrified that something would happen to the kids and I would get sued. I called the police but they could do nothing without the tradesman talking to them.

    At one point the sheriff’s office was so behind in serving the papers for one step of the process that it was taking 4-6 weeks for that ONE STEP in the process unless you paid $100+ for expedited service. I think that was in Miami-Dade, but this was last year sometime so hopefully it’s better now.

    90%+ of my evictions were of people gaming the system to get as much free rent as possible and they had been evicted before. I did not originally rent to them, but I was foreclosing on the property and the tenants were already in there. There were a few tenants that were goood tenants that wanted to stay and were willing and able to pay market rent. This was frequently lower than the lease they had signed, but I was perfectly willing to accept their old lease or renegotiate a reasonable new lease with them if they wanted to stay. I was able to do this with every single one of my “legitimate” tenants. I was even willing to accept on the low end of the range of reasonable market rates to keep the tenants in place in most places because of the risk of damage/theft to an empty property and the concomitant higher insurance rates for same.

    The cash out of pocket cost of eviction includes lawyers fees, filing fees, extra fee to sheriff for expedited service, and postage and/or having someone post the property for the legally required notices. Add in your lost rent, and you are talking about a LOT of money, even for a property that does not rent for much.

    I personally was willing to work with every single tenant that wanted to stay and pay rent but was having temporary problems. We let some mow the lawn for a rent break, arranged twice a month payments to make cash flow easier, helped them sign up for section 8, offered to let them move to a less expensive property with no extra fees, etc. About 90% of them JUST DID NOT WANT TO PAY. They knew that if the property was in foreclosure that it would be harder to evict them and that they could frequently stay for months without paying, and that was their goal. They almost never said this outright, at least until the very end. They would say one thing and then another, tell you the check was in the mail, their daughter took money out of the account and that’s why the payment didn’t go thru, anything to delay a little longer.

    On the other side I saw tenant after tenant that had been robbed of their deposit and money that they thought was going toward buying a house. However, in every case the market price of the house had fallen so far, that even after losing all that money they had put toward the house, they STILL needed to pay less to acquire it at current market rates. Oddly, this did not make them feel any better, for the most part. They still felt ripped off. But if you agreed to pay $150K for a house, put $10K down and paid the rent on a rent with option contract, and you are able to buy the house the next year for $120K- even having lost the $10K, you are coming out ahead. If the previous landlord hadn’t screwed you, the only way stay in the house would have been to pay the $150 you agreed to. If you realized the value had dropped and didn’t want to pay that much you would have to move if the previous landlord wasn’t willing to re-negotiate the price. In almost every case, the tenant would ask ME, the new owner, for the deposit they had given the previous owner AND want to buy the house for $120K. In only 2% of the cases had the previous landlord actually escrowed the deposit and turned it over to me. Every other one had pocketed the money.

    Tenants can avoid problems by checking out their landlords before signing anything!!! Never pay in cash, but get a receipt if you have to pay cash for some reason! Keep that receipt!! Never pay anything until you get a copy of the lease you have signed! READ THE LEASE before signing! Keep your copy of the lease!!! Check county records to make sure your landlord is in fact the owner or can show papers signed by the owner that s/he is entitled to manage it, especially if they want cash or want to you to make the check out to them personally for both the deposit and the first month’s rent.

  7. Has anyone ever heard of lease/option deals with the option fee escrowed? Or does it just go into the cash-flow for the seller/landlord?

    If that was required by legislation (I’m sure there are a lot of people who’d go to their state capitols), how would that change the market for REI focused on lease/option deals? That is, if the funds had to be escrowed with a title company (title company keeps any interest on the acct), would that dis-incentivize lease/option dealers in the market or just make sure things stayed legit. Tax-wise, the lessor/seller shouldn’t get/claim those funds as income until the sale is complete or the tenant/buyer willfully releases their option.

    The above story is quite true, in that anyone in the landlord business should have a cushion of 3 months or so to cover lost rents, damage, eviction costs, etc. I’m a Dave Ramsey fan when it comes to personal finances. Don’t carry stupid debt and keep an emergency fund and life is just easier when “hiccups” come along like non-paying tenant. Worst eviction cost I ever had was in Texas where the tenant dragged out the process until the Sheriff showed up and gave them notice. I think I needed to spend something like 6K to rehab that unit. Broken toilet (how do you live w/o a working toilet?), broken windows, dog urine stains on the hardwood floors, holes in walls, maggots in the fridge, etc. My property management firm nearly quit on the spot instead of dealing with it… but they came through and got the unit squared away and a new tenant. The evicted tenant came with the duplex, evidence that some landlords just sell their problem tenants away.

  8. I should put in a heroic referral for Davidson property management in San Antonio. They saved my bacon since I was an out-of-the-area landlord at the time. This was in ’03-’04, so I’m just guessing they’re still around.

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