Help! My Landlord is Getting Foreclosed!
by
S David Cooper on Nov. 07, 2016
Real Estate Landlord-Tenant Real Estate Real Estate Foreclosure
Summary: What happens
So, you have rented the perfect home. You finally got that
last box unpacked. Time for a glass of wine, dock the iPhone, and play your
favorite Schubert, or maybe you kick back on the couch, pop open a brewski, and
watch the game live in 4k. Life is good, right? Just then, the doorbell
rings. It is a process server handing you legal papers. Your new home has just
gone into foreclosure! WTH!? Don’t panic! It is not as bad as you think, but it
is serious, so pay attention.
First of all, you are wondering, “Can the landlord even rent
to me if the property is in foreclosure?” Yes, he can. There is no Florida law
that prevents him from it, and no; he is not required to tell you that the
property is in foreclosure (I will tell you how to deal with that below). Since
the landlord has no obligation to advertise to everyone that the property is in
foreclosure, you might have even signed the lease the day before the
foreclosure sale and have a new landlord the next day! Before we get into what
happens after the foreclosure sale, let’s talk about your rights and
obligations as a tenant BEFORE the
foreclosure sale. If your landlord is not paying his mortgage, he probably
isn’t paying the fees to the homeowners’ or condo association. If he is not,
that can affect you, the tenant.
ASSOCIATION ISSUES
If the landlord is not paying the association fees, Florida
law grants certain powers to the association. The association can deny you the
use of the facilities (like swimming pool, club house, gym, etc.). It can also
demand that you pay your rent directly to the association and not to the
landlord (to pay the landlord’s debt). Of course, the landlord doesn’t want you
to do this, so he will scream and shout, threatening to evict you if you do not
pay him. Although that puts you in an awkward situation, you are required
by Florida law to pay the association if the association makes a proper Demand
in writing. While the landlord cannot evict you for paying the association
after a proper Demand has been made, the association can evict you if you do not pay rent to the association. That
Demand has to have specific language that is printed in the governing statute,
so if you get such a Demand from an association to pay rent directly to it,
compare the Demand to Fl.Stat.
718.116(a)(1). If there is any discrepancy, or if the Demand is missing the
language in 718.116(a)(1), then contact an attorney to seek advice before
making another rent payment. If the Demand is valid, future payments should go
to the association. If it is not, future payments should go to the landlord
until a proper Demand is made. You do not have to pay again for any months
already paid (for example, if you paid last month in advance), and you are
NEVER obligated to pay the association fees of the landlord, unless your lease
requires you to do so.
FORECLOSURE
It is important to note that the landlord’s mortgage lender
is not the only party that can foreclose on the property. The association can
foreclose for those unpaid assessments, and there are several others who can
foreclose, as well. In today’s market, you are most likely going to be facing a
mortgage foreclosure, an association lien foreclosure, or both. You will be
named as a defendant in the foreclosure lawsuit, by name if it is known or as
an “Unknown Tenant” if it is not. Do not worry about this. They cannot go after
you personally; it will not affect your credit. You must be named in the
foreclosure because you have an interest in the property. By your lease, you
have the right to possess the property, so you must be named. Sometimes, the
Plaintiff in the case might not list the tenant as a defendant. If the tenant
is not listed, then the tenant’s interest is not extinguished by the
foreclosure, and there is no issue whatsoever about the new owner. The new
owner must follow the lease as if he were the original landlord.
While the foreclosure case is proceeding, the landlord is still the owner. Unless you receive a Demand as described above, you must keep paying the rent to the landlord – nothing about the lease changes. The landlord is still the landlord…until he is not. That day comes when the foreclosure sale is held and somebody else wins the auction. Although there is a waiting period before the new owner is issued the Certificate of Title (to give the foreclosed owner one last shot to pay the debt), assuming the property is not “redeemed” by the foreclosed owner during that waiting period, the new owner has the right to collect the rent as of the date of the Certificate of Title. If you are scheduled to pay rent around the date of the foreclosure sale, you should wait to be sure who gets paid. You don’t want to pay the wrong person and have to pay again, right? You can check the status of the case online by going to the Clerk of Court's website and entering the case number or party names (which will be on the documents you get).
STOP PAYING RENT TO THE OLD
LANDLORD/ASSOCIATION AS OF THE DATE OF THE CERTIFICATE OF TITLE! When a new owner takes title to the property after a foreclosure, the new owner is given a "Certificate of Title" from the Clerk of Court. This is the proof of ownership, similar to a deed. Once the Certificate of Title is issued, the new owner is officially the owner of the property and your lease ends. There is no lease, unless you enter into a new lease. 1.
To be protected by Ch.83.561, you must be a bona fide tenant. That means that you
are not the spouse, child, or parent of the former owner…and you are not the
former owner leasing the property to himself. It must be an “arm’s-length”
transaction; not some secret, back-room deal to somehow take advantage of the
situation. To be a bona
fide tenant, you also have to be paying a fair market rent. Your rent can
be less than “fair market,” but it cannot be substantially less. There is no real test to determine what is
substantial; it is a subjective test. A 10% discount would not likely be
substantial, but a 40% discount would almost certainly be. What else can you do to protect yourself as a tenant? When
we are talking about leases, you have to protect yourself from the beginning –
PUT IT IN THE LEASE! Before signing a lease, make sure that the lease includes
a clause indicating the landlord agrees that there is no foreclosure action
currently pending. This will not stop a foreclosure from being filed and will
not give you any special rights to get out of the lease unless you write those
into the lease, too; however, this will do one of two things. It will let you know
if there is a foreclosure already filed, or if the landlord lies, it will be
grounds for getting out of the lease if you want. Knowing if a foreclosure
action has already been filed will help you determine how soon you might have
to deal with the issues we discussed above. If the case is in the
early stages and you only intend to stay a year or so, you might not ever have
to deal with the issue. So…sit back, armed with the knowledge you now have, and
dock that iPhone or pop that brew and have a great day! PROTECTING TENANTS AT FORECLOSURE Ch.83.561
Prior to 2009, if the tenant was named in the foreclosure, the lease was also extinguished when the Certificate of Title was issued to the new owner. Tenants could be forced to move out upon 24-hour’s notice. Seeing the chaos created by the huge number of foreclosures and tenants being put out with almost no notice, Congress passed a law to slow down the transition and to allow tenants time to find new homes. Unfortunately for tenants, that law has now expired and is no longer in effect. Tenants must now rely on state law. The State of Florida has enacted Ch.83.561, which provides a similar protection for tenants, but for a shorter amount of time. The new owner cannot force the tenants to move out until he has given the tenants a 30-day written notice.3. WHAT ELSE?