real estate

Options when renting a house in foreclosure

Justin HarelikDear Bankruptcy Adviser,
My family and I currently rent a house in which the owner has claimed bankruptcy. What happens next? How long will it be before we have to move? The owner cannot answer these questions for me. Can you give me some insight?
--Valerie

Dear Valerie,
Renters have specific rights to protect them from being evicted when the landlord files for bankruptcy protection. Without knowing the specific circumstances of the homeowner's bankruptcy case, I cannot say how much time you have to remain in the house.

It is difficult to answer this question because the owner could be trying to save the house in which you live. In fact, he or she may even be current on the mortgage but unable to pay on other debts. If the owner is trying to keep the home after completing the bankruptcy, you would not see any change in your current lease agreement.

My hunch is the owner is not current on the mortgage, and the home may be in the foreclosure process. The amount of time you have in the house will depend on how far behind the landlord is on mortgage payments at the time he or she filed bankruptcy.

When a homeowner files bankruptcy, all lender activity, including foreclosure, must stop. The bankruptcy clerk's office mails a notification to the lender of the bankruptcy filing. The lender then petitions the court to take the property out of bankruptcy protection. This process generally takes about two to three months from the date of filing for the lender to remove the house from the bankruptcy protection.

At that point, the lender continues with the foreclosure process that had been halted because of the bankruptcy filing. Depending on your state foreclosure laws, the sale of the home could be within weeks or months of the lender receiving the court order to take the property out of bankruptcy protection.

At that point, you still have some rights that restrict the new landlord, either the bank or a new purchaser, from evicting you right away.

In 2009, President Barack Obama signed the Protecting Tenants at Foreclosure Act of 2009. The law allowed tenants to stay in the property until the end of their lease. Month-to-month tenants were given 90 days from the date of sale.

There are only two exceptions to this rule: If the new owner intends to move into the house, this allows a tenant with an outstanding lease or month-to-month agreement only 90 days to stay in the property; and if you rent in a city with rent control and/or "just cause" eviction protection, merely changing ownership from owner to bank does not qualify as "just cause" and can prevent the new owner from evicting you.

In most cases, the lender or broker will contact you once the property is sold in foreclosure. The lender may offer you some cash to move out sooner, known as cash for keys. Some of my clients receive between $500 and $2,500 from the lender to help cover the cost of moving.

You could get lucky and have a new landlord that is looking to continue with your current rental agreement. While I believe this is uncommon, it may be worth holding out as long as possible before you decide to uproot yourself and your family.

I hope this gives you some additional information and guidance. I wish the landlord was not being so difficult because I can only imagine it is a very unsettling feeling to not know when an eviction notice may arrive.

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