Landlord’s Foreclosure With Tenants? Yes, Mr. or Mrs. Tenant, You Have Rights and Protections.

It’s a relatively new occurrence with the crash of our financial system and the foreclosure epidemic. Have you seen it yet? Here’s the scenario:

–  Mrs. Tenant signs a lease with Mr. Landlord

–  Mr. Landlord fails to make his mortgage payments

–   The lender forecloses on Mr. Landlord (sometimes with the Mrs. Tenant’s knowledge, sometimes without)

–  After foreclosure, the lender evicts Mrs. Tenant, even though there is still time left on Mrs. Landlord’s lease

Fair?  Not fair?  I guess it depends on whether you are Mrs. Tenant or the lender.

Well, in an attempt to bring some certainty to tenants living in foreclosed homes, the federal government passed a law called the Protecting Tenants at Foreclosure Act. 

Athough the law was enacted in 2009 and amended in 2010, very few people seem to be aware of it. Here are the key provisions of the law:

General Rule #1:  A tenant with a lease has the right to remain in the home until the lease term expires. This rule applies unless one of the following exceptions to General Rule #1 applies:

Exception #1: If the tenant is a child, spouse or parent of the landlord (that is, the homeowner before foreclosure). Of course, this exception stops a landlord from giving a close family member a “sweetheart lease” right before foreclosure.

Exception #2: The lease must have been formed in a “arms length transaction”. In short, the deal between the landlord and tenant must have been a “normal”, “fair” deal between two parties with equal bargaining power. Again, this exception stops the lender from being forced to deal with a one-sided lease after foreclosure.

Exception #3: If lease is for “substantially less than fair market value”, the tenant may not stay until the end of the lease term. Once again, this exception protects the foreclosing landlord from being on the wrong end of an unfair lease.

Exception #4: If the foreclosing party desires to personally occupy the property, or sells the property to someone who wants to personally occupy the property, a tenant must be given 90 days notice to move. This exception will allow a lender or person buying from a lender to evict you before the end of your lease term.

Exception #5:  If you don’t pay your rent, or if you violate any other term of your lease, you can be evicted. Yes, as one of my college economics professors once said, there is no such thing as a free lunch. As a tenant, you must pay rent and meet all other terms of your lease.

General Rule #2: If a tenant’s lease expires before the foreclosure is concluded, or if a tenant’s lease ends within 90 days of the foreclosure being concluded, the foreclosing lender may not evict the tenant without giving the tenant at a minimum 90 days notice.

How to analyze your situation: If you are a tenant and fall within General Rule #1, and don’t fall within any of the exceptions, you can stay until the end of your lease. If you don’t fall within General Rule #1, the foreclosing lender (or new owner) may not evict you without giving you 90 days notice.

Other helpful information:

The law was originally set to expire on December 31, 2012, but that date was extended by a recent amendment, and the law will not expire until December 31, 2014.

The law applies to Section 8 rentals. If you are a tenant and find yourself at the wrong end of a foreclosure, call an experienced Michigan real estate attorney to discuss your options.

Glenn Matecun

Michigan Attorney | Michigan Landlord-Tenant Law

Explore posts in the same categories: Michigan Foreclosure, Real Estate

One Comment on “Landlord’s Foreclosure With Tenants? Yes, Mr. or Mrs. Tenant, You Have Rights and Protections.”

  1. June Says:

    this is great information on something that many people are experiencing lately

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