When a landlord’s rental property is foreclosed, what happens to the tenants?
Under the federal Protecting Tenants at Foreclosure Act, the new owner generally must give a bona fide tenant at least 90 days’ notice before making them leave, and the tenant can usually stay to the end of the lease. The exception is a buyer who will live in the home, who can end the lease but still owes the 90 days. Tenants and landlords both need to know it, because state law can add more protection.
What the federal law requires
The Protecting Tenants at Foreclosure Act was passed in 2009 and, after expiring at the end of 2014, was made permanent in May 2018, according to the National Low Income Housing Coalition. It sits in the note to 12 U.S.C. 5220, where Cornell publishes it as Pub. L. 111-22 section 702.
- The new owner, called the successor in interest, takes the property subject to a bona fide lease made before the foreclosure notice.
- The tenant may stay until the end of the remaining lease term.
- A buyer who will live in the unit as a primary residence may end the lease on the date of sale, but must still give the tenant a notice to vacate at least 90 days before it takes effect.
- A tenant with no lease, or a lease that can be ended at will under state law, still gets a notice to vacate at least 90 days ahead.
- The law does not override state or local rules that give tenants longer notice or more protection.
Who counts as a bona fide tenant
The statute treats a lease as bona fide only if all of these are true. The mortgage borrower, or the borrower’s child, spouse or parent, is not the tenant. The lease was the result of an arms-length transaction. And the rent is not substantially less than fair market rent, unless a federal, state or local subsidy lowers it.
A landlord who rented to a relative at a token rent should not expect the tenant to have these protections. A landlord who rented to an unrelated family at market rent should expect them to.
Example a made-up tenant has a lease with 8 months left when a lender completes a foreclosure. The tenant is unrelated to the borrower and pays market rent, so the lease is bona fide. The new owner buys it as an investment, so the tenant may stay the remaining 8 months. If the new owner plans to live there, the lease can end, but the tenant still gets at least 90 days’ notice, which is about 3 months, before having to leave.
What you should do as the landlord facing foreclosure
Foreclosure is serious for the landlord, but the tenant has done nothing wrong. A few steps protect you and them.
- Keep every lease, rent record and deposit record together so you can hand clean paperwork to whoever takes over.
- Tell tenants in writing what is happening, using an approach you can document. See how to serve notice to a tenant by email for what makes a notice hold up.
- Do not collect rent you cannot account for. A lender can have rights to rents under the mortgage documents, so ask your attorney what you may still collect.
- Handle the security deposit properly. Whether it moves to the new owner or must be returned depends on your state. See what happens to deposits when a building is sold.
- Ask the lender or the new owner in writing where tenants should send rent, and pass that on once you have it.
This is general information, not legal advice. Foreclosure rules differ a lot by state, so a landlord facing one should talk to a local attorney.
What about rent and repairs during the process?
A foreclosure case can take months, and a tenant’s lease and rent duties normally continue until ownership actually changes. Tenants still owe rent to the person they have been told to pay, and a landlord still has to keep the unit livable. Skipping repairs while a foreclosure is pending invites a habitability complaint.
If a tenant has a Section 8 or other voucher tenancy, the notice rules for those programs apply too, and the law says it does not change the rules for ending a federal- or state-subsidized tenancy.
How DoorKeeping handles it
DoorKeeping keeps each property’s ledger, deposits held and signed lease together in that property’s own books, which is the file a lender, buyer or court will ask for. You can ask Claude or ChatGPT for a rent roll or a tenant’s payment history, and emails to tenants go out only after your one-tap approval.
Sources
Questions
- How much notice do tenants get when a rental is foreclosed?
- Under the federal Protecting Tenants at Foreclosure Act, at least 90 days before the new owner’s notice to vacate takes effect, for a bona fide tenant. State law may give more.
- Can the tenant stay for the rest of the lease?
- Generally yes, if the lease is bona fide and made before the foreclosure notice. A buyer who will live in the home can end it but still owes the 90 days’ notice.
- Does the law cover a tenant who is the borrower’s relative?
- Not as a bona fide tenant. The statute excludes a lease where the borrower, or the borrower’s child, spouse or parent, is the tenant.
- Is the foreclosure rule the same in every state?
- The federal floor is the same, but states and cities can add longer notice or other protections, so check your local rules.