Although many tenants believe that foreclosure is something that only affects their landlord, that is not the case. Since the collapse of the housing market, the foreclosure crisis has uprooted thousands of tenants from their homes. After all, when a landlord’s property becomes the subject of a foreclosure action, it is the tenant’s right to the continued occupancy of the leased premises which is called into question.

Quite often the property that is being foreclosed on is the landlord’s second home or an investment property on which they are upside down and which they have chosen to just let go through a foreclosure. Although foreclosure may be the right answer for the landlord, it definitely leaves a tenant in a precarious situation. After all, it will be the tenant, and not the landlord, who will be losing the security of their home and face an uncertain future. Also, it will be the tenant who will be faced with the additional expense of moving, which often involves a storage fee, especially if alternative housing may not be found in time and a stay at a motel/hotel becomes inevitable.

Given the grave consequences that a foreclosure has upon a tenant, you would think that tenants are always provided with adequate notice about the pending foreclosure. Unfortunately, that is not the case. Given the nature of a foreclosure action, it is rare for landlords to apprise their tenants about the foreclosure itself and/or their rights in light of the foreclosure.

So what happens to a tenant’s leasehold interest after a foreclosure? Must a tenant immediately give up possession and vacate?

Prior to 2009, the tenant was indeed in a tough predicament. Many tenants would have very little, if any, advance notice to move, whether prior to or as a result of an eviction. However, that all changed when Congress passed the Protecting Tenants at Foreclosure Act of 2009 (the “Act”).

The Act has returned to tenants a sense of security as tenants are no longer subject to an immediate eviction after a foreclosure has taken place. The Act has made it possible for tenants to remain on the property for at least long enough for a tenant to be able to find alternative housing.

In particular, the Act provides the following protections to a tenant:

  1. Where there is no lease, tenants must be given at least ninety (90) day notice before they would be required to vacate the property.
  2. If there is a lease, then the tenant may remain on the premises for the entire duration of the lease. The eviction action may only be commenced after tenant’s current lease agreement terminates.
  3. Additionally, if the new owner intends to reside at the property, then the tenant must only be given a 90 day notice.

In essence, the Act has made it possible for the lease (where there is one) to survive the foreclosure action. This means that the tenant may continue to reside at the foreclosed property as if the foreclosure has not occurred. Even in cases of a month-to-month lease (where there is no actual written lease agreement in place), the tenant is entitled to a 90 day notice to relocate, which is much longer than the 15 day notice that is required by the Florida Statutes.

The tenant should also be aware of a “cash for keys” program that exists to encourage tenants to vacate the foreclosed premises early, prior to the expiration of their lease. With “cash for keys” tenants are offered cash by the new property owner/landlord in exchange for surrendering their keys and vacating the premises. Sometimes it may be advantageous for a tenant to accept such funds and move but that may not always be the case. Whether or not to take the cash is something that a tenant must decide based on his or her particular set of facts. Also, as to how much a tenant may receive, that will vary, depending on the value of the property, the condition of the property, and, of course, the new owner.

There are a lot of landlords who are still not aware of either the Act itself or some or all of its requirements and may still try to evict a tenant without providing them with the requisite 90 day notice or honoring the original lease term, whatever the case may be. However, should that occur, the tenant is under no obligation to move unless they choose to leave under the “cash for keys” program.

Finally, as long as the tenant remains in possession of the property that is subject to a foreclosure action, that tenant must continue to pay rent in a timely manner. It is not up to the tenant to withhold rent just because the landlord is in foreclosure. A tenant who stops paying can still be evicted for nonpayment of rent.