LURLINE R. JOHNSON (R), ABR, CRB, CRS, GRI, RMP
Property Profiles, Inc.
Past President, Oahu Chapter
National Association of Residential Property Managers
Q. We received a notice on our door saying that our rental property is going into foreclosure. We just renewed our lease and have another 11 months left to go. What are our rights as a tenant?
A. Unfortunately you are not alone. Renters are now being affected by foreclosures almost as often as home owners. The mortgage industry crisis that started in 2006 has resulted in millions of foreclosed homes across the nation. Most of the occupants are the home owners themselves, but recently they have been joined by numbers of renters who discover, often without advance notice, that their rented house or apartment is now owned by a bank, which wants them to vacate.
Prior to 2009, most renters lost their leases upon foreclosure. These rules changed dramatically on May 20, 2009, when the “Protecting Tenants at Foreclosure Act of 2009” was signed into law (Public Law 11122). This legislation provided that leases would survive a foreclosure meaning the tenant could stay at least until the end of the lease, and that month-to-month tenants would be entitled to 90 days notice before having to move out. An exception was made for the buyer of a foreclosure property whose intention is to live at the property. This buyer can terminate a lease with 90 days notice regardless of whether it is a fixed lease or month-to-month.
This law will only stand if it is a bona fide lease or tenancy where the tenant is not related to the mortgagor, if it is an arms-length transaction, and if the lease requires the receipt of rent that is not substantially less than fair market value.
Thanks to the 2009 federal legislation, most tenants with leases will keep their leases and month-tomonth tenants will have at least 90 days to relocate. In fact, month-tomonth tenants would be in an even better situation -these tenants always know that they can be terminated with a proper 45 day notice, and 90 days is considerably longer than they would normally receive to terminate a contract.
However, a tenant with a fixed term lease whose rental has been bought by a buyer who wants to move in ends up less fortunate than before the foreclosure because he may lose his lease with 90 days notice. This situation would probably not have happened had the owner simply sold the property to a buyer who intended to occupy the property, as the lease normally transfers with the sale.
So to answer your question, you will have to wait and see if the property is purchased by an investor or owner-occupant buyer. With an investor buyer your lease will continue until the end but otherwise you will be looking at 90 days to relocate.