The Problem: As the number of foreclosures has skyrocketed in the last two or three years, more and more renters living in the houses or apartment buildings being foreclosed have become victims of the legal dispute between their landlord and the landlord’s bank. Renters have become the collateral damage of the foreclosure epidemic.
Foreclosure law carefully lays out the rights and responsibilities of the mortgage lender and the home or apartment building owner, but pays virtually no attention to the renters who occupy many of those homes or apartments. So:
- Renters often have no idea that their landlord had fallen behind on mortgage payments and that their home is being foreclosed. Many times they find out after the foreclosure sale has occurred and the bank or the new owner serves them with eviction papers.
- Not knowing about the foreclosure, renters pay rent to the landlord after the foreclosure when the landlord no longer has any right to the rent. Getting the money back from the former landlord is usually difficult if not impossible, and the it is often difficult to recover pre-paid security deposits.
- Landlords sign leases with new renters when the landlords know about an upcoming foreclosure, but do not disclose it to the renter. The term of the lease can extend beyond the anticipated foreclosure date, when the landlord knows he or she cannot perform under the lease after that time.
Both Congress and the Oregon legislature reacted to this problem relatively quickly, with both passing legislation in 2009 to provide the following protections for tenants:
The Federal Response: The Protecting Tenants at Foreclosure Act of 2009
- Gives a minimum of 90 days notice before most tenants would be required to move out, that 90 days starting no sooner than the date of the foreclosure sale.
- Tenants who have leases of a specific length of term are permitted to finish out the term; the exception is if the person who purchased the home at the foreclosure sale intends to live in the home as that person’s primary residence, in which case the tenant is entitled to the same 90 day notice above, instead of to the end of the term.
- To receive these rights the tenant cannot be the same person who has lost the property to foreclosure, or a member of that person’s family.
- Unless extended, this law will expire after Dec. 31, 2012; a bill introduced in the last session of Congress to remove this “sunset clause” did not pass.
The Oregon Response: 2009 Senate Bill 952 and House Bill 3004:
- Written notice of a pending foreclosure now needs to be sent to anyone living in a rental, that is, the notice must be “addressed clearly to any person who occupies the property and who is or might be a tenant.”
- If the tenant has a “fixed-term lease,” he or she must contact the foreclosing “trustee” and provide “written evidence of your rental agreement,” at least 30 days before the proposed foreclosure sale to get the remaining benefits of the new law. If the tenant has no “fixed-term lease,” and can’t come up with a written rental agreement, the tenant can give other indirect written evidence of a rental agreement, such as rent receipts or cancelled checks.
- Assuming this evidence of a tenant relationship has been established, if the tenant has a “fixed-term lease,” the new owner has to give the tenant 60-days notice to vacate the property. If the tenant does NOT have a “fixed-term lease,” the new owner has to give the tenant only 30-days notice to vacate.
- Once the tenant has learned about the upcoming foreclosure, the tenant can apply any pre-paid security deposits or “last month’s rent’ to the present rent as it becomes due to the landlord. But the tenant must notify the landlord in writing of this intention at or before the time the next rent payment is due.
- Landlords of all one-to-four unit properties being foreclosed upon must notify any NEW tenants of the pending foreclosure when they sign the rental agreement. Or else the tenant can sue the landlord for twice the amount of any actual damages or the monthly rent, whichever is larger, plus recovery of any prepaid rent.
Note that these federal and Oregon laws overlap in some respects. In many other areas of law where there is a conflict, federal law controls. But here the federal law specifically provides that any state statutes which give tenants more protection in foreclosure are controlling over the parallel parts of the federal statute. Also, since the federal law expires at the end of 2012 (unless it is extended), only the Oregon law will be in force after that.