Lessees Rights on Foreclosure and on Sale

If the property you rent is being sold or is subject to potential foreclosure, it is important to protect your rights. When property is sold during the term of a lease, the rights and responsibility of the lease apply to the tenant and new owner; however a foreclosure judgment will terminate the lease, particularly if you are named as a defendant in the foreclosure action.

Lessee's Rights on Sale

A sale of property subject to a lease agreement does not terminate a month-to-month rental agreement or a long term written lease. The new owner is bound by the original lease and shall not evict the lessee. Moreover the new owner cannot raise the rent in the middle of an existing lease.

When a sale occurs, your previous landlord or the new owner should provide you with notification of the new owner's name and address, either by certified mail, or by a revised posting on the premises.

The new owner is responsible for obtaining all security deposits from the previous landlord and for returning the security deposit to the tenant at the end of the tenancy. Tenants should be promptly notified where the deposits are being held.

Lessee's Rights on Foreclosure

Right to continued possession

On foreclosure, long term tenants, who have continued to pay rent and who entered into the lease prior to the mortgage, may have a right of continued possession in the rented premises, especially in areas where rental housing is scarce. These tenants must treat the foreclosure purchaser as the original landlord and pay all future rents to the purchaser.

More frequently, however, the mortgage has priority over the lease and, in the event of foreclosure, the tenant will be named as a defendant in order to terminate the lease. If you are named as a defendant in your landlord's foreclosure action, it is important to continue to pay rent, and to contact an attorney to appear and respond to the action on your behalf. In addition, you or your attorney should contact the mortgagor to negotiate a new lease agreement.

On foreclosure, all tenants are entitled to a reasonable period of time to vacate. Moreover, tenants must be named as defendants in the foreclosure action in order for any eviction action to be legal.

Notice requirements

Tenants of property being foreclosed upon must be served with the proper statutory notices and must be given time to respond. Even though the exact timeframe for notice varies, a purchaser generally must provide long term tenants with at least 60 days' written "Notice to Quit", if the purchaser does not wish to continue leasing to the tenant.

A "month-to-month" (periodic) tenant can be legally evicted only after providing 30 days written notice. In case of a week to week rental, the tenant needs to be given seven days' advance notice.

Right of redemption

A long term tenant has a right to redeem the mortgaged property of his lessor during foreclosure sale. If the tenant redeems the property, the foreclosure will be stopped and the tenant's lease will not be terminated.

Refund of Security Deposit

On foreclosure, a lessee is entitled to the refund of his security deposit from the previous lessor, unless the new owner delivers to the tenant a signed statement acknowledging that he has received and is responsible for the tenant's deposit.

Related Resources on lawyers.com