So You're Being Evicted because Your Landlord Foreclosed--Now What?

By
Mortgage and Lending with United Lending

eviction order

As foreclosure rates sky-rocket, the victims oftentimes lost in the shuffle are renters of foreclosed properties who get the boot after their home is foreclosed upon. Standard practice is to send an eviction letter via certified mail to the tenant giving them 30 days to evict the property once the foreclosure is finalized. Unfortunately, many tenants are not notified of the eviction until after the foreclosure, giving them only a few weeks to find a new home.

If finding and moving into a home in a few weeks isn't inconvenient enough, many tenants also loose their security deposit.  In managing my own rentals, I had a couple prospective tenants contact me anxiously looking for a new home with limited funds for security deposit/first month's rent because (1) they didn't have time to save up for moving expenses on such short notice, and (2) they lost their previous security deposit to their landlord who went M.I.A.. 

What Do You Do if This Happens to You?

Here are two options:

1. Continue to rent the home

If your home's mortgage is owned by Fannie Mae or Freddie Mac, you may continue to rent from them on a month-to-month basis after the foreclosure is finalized. Rent will be based on market rent, and you'll give them the right to show the home to prospective buyers as it will be on the market for sale while you live there. Making your home available for showing is obviously inconvenient, but this option will give you time to find a new place.

How do you know if Fannie or Freddie own your mortgage? Immediately get in contact with Fannie or Freddie see if they own your mortgage when you're contacted about eviction/foreclosure proceedings. If you confirm this, ask to speak with an Eviction Specialist who will give you your rights as a tenant, and your options once the foreclosure is finalized, including renting the home from Fannie or Freddie.

It's at this point you decide how to handle paying rent to your landlord until the foreclosure is finalized. The Eviction Specialist will not advise you on this issue, but keep in mind many tenants have continued to pay rent to their landlords who kept their security deposits after the foreclosure is finalized. I'm not saying skip-out on rent, but be proactive in finding out what your landlord is doing with your money.

2. Utilize Fannie or Freddie's Cash-for-Keys Program

Another option is to be compensated for leaving the property by the eviction date and in good condition. This option can also be discussed with an Eviction Specialist, and the amount Fannie or Freddie compensate you is negotiable. It's important you (1) prepare a list of reasonable moving expenses beforehand to help in negotiations, and (2) get the final compensation amount in writing.

Reasonable moving expenses include:

  • A security deposit and first / last month's rent
  • Movers
  • Utility deposits
  • Temporary living quarters such as motel

What if Fannie or Freddie Don't Own the Mortgage?

Many other investors are offering these sort of arrangements to tenants as well. Contact the attorney on the notice of foreclosure or eviction letter you receive and ask for the investor's contact information to discuss your options.

You Need to be Proactive

Although you have rights as a tenant, unfortunately they are oftentimes lost in the foreclosure shuffle. Therefore, the easiest way to handle this unfortunate situation is to be proactive in finding out your rights and contacting the right people quickly about your options.

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Rainmaker
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Loan Survivor Real Estate Financing Expert
Purchases, First Time Buyers, Pre-Approvals, Refinance - Birmingham, MI

Great post!  Hope you get it out there.

One thing you can tell tenants to do to protect their security deposit is to put rent equal to their security deposit into an escrow account held by a third party. This will show they have the ability to pay.  They can then inform their landlord that upon proof the property's mortgage is current or not in foreclosure - they will release the funds. 

NOTE: this is not legal advice and a tenant should not do this without just cause and before checking with an attorney.

March 15, 2009 12:41 PM #1
Rainer
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Nicole Lahti
United Lending - Austin, TX
Austin Texas Mortgage

That's a great idea. Its a sticky situation to be in for a tenant. More than anything, they need to be proactive and aggressive because they're the first people to be forgotten in the foreclosure process.

March 16, 2009 10:41 PM #2
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Rainer
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Nicole Lahti

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