A situation faced by many today and the reason for many recent calls to our office is when tenants renting residential property have just been served with a foreclosure complaint and summons. Many ask themselves why they are even a named defendant in a case based on a debt that does not relate to them.
Because a tenant has a right to possession of the particular property they are leasing, the foreclosure action could affect and possibly eliminate such right, and thus the tenant becomes a necessary party to foreclosure litigation. The first question many tenants have and have asked us is: do I still have to pay rent?
Unfortunately, in a great majority of cases, the answer is yes, even if the landlord continues to fail to use the rent money to make its mortgage payments. This is because the lease agreement with the landlord is a separate contract unrelated to the landlord’s relationship with their lender. In the absence of the extremely unusual circumstance of a provision in the lease that abates, suspends, or eliminates the obligation to pay rent when the landlord is facing a foreclosure action, a tenant who stops making scheduled monthly rent payments because of the foreclosure status of its landlord will face a possible eviction action.
The natural follow-up question is then, what happens once the foreclosure sale is completed and there is a new owner of the leased property? Again, the answer might not be what most tenants would expect. Once a certificate of title has been recorded, the winning bidder and ultimate purchaser at a foreclosure sale usually has the right to possession of the property against any interest holder properly joined in the foreclosure action (this is why it is crucial to include the tenant as a defendant in the foreclosure action). The reason for this is that a Final Judgment of Mortgage Foreclosure usually contains a provision providing that upon filing the certificate of title, the landlord defendant and all persons claiming under or against such landlord defendant shall be foreclosed of all estate or claim in the property, and the new purchaser shall be let into the possession of the property. After the foreclosure judgment is entered, the new owner is thus able to obtain a writ of possession and evict the current tenant.
However, in May 2009, Congress passed ‘The Protecting Tenants at Foreclosure Act’ (“PTFA”) as part of the ‘Helping Families Save Their Homes Act of 2009’ which changed certain procedures surrounding post-foreclosure evictions, and altered the rights of tenants in post-foreclosure properties, specifically by requiring new title holders to either honor the lease arrangement in place with the tenant or provide advance notice of the impending eviction action. Under PTFA, if a valid lease or tenancy exists between the previous landlord and the tenant, it may considered a “bona-fide” tenancy and the PTFA would then require that the new owner honor the remaining term of the lease if it does not plan to immediately occupy the property (which is usually the case because the lender or investor is generally the winning bidder at the judicial foreclosure auction, and not a third party seeking to live in the property).
For more information about your potential rights as a tenant renting a property facing a foreclosure sale and regarding how the PTFA may apply to your situation, contact a Florida real estate attorney.