Tenant's rights in Foreclosure

Posted On: April 2012

ASK AN ILLINOIS REALTOR, WITH TIFFANY BREWINGTON

Question: I'm a tenant renting a home in foreclosure. What are my rights?

Answer: Tenants are often the last to know that the rental property they are living in is in foreclosure. Some are made aware by letters in the mail, calls, or people showing up interested in buying the house. Unfortunately there is not much you can do except understand the time frame you have to work with, and the possible things that may happen, so that you may consider finding a new home if necessary.

Understanding the Foreclosure Process in Illinois

The foreclosure process in Illinois takes around 7 months, and typically begins after about 3 months of missed mortgage payments. However, nowadays many lenders are willing to work with the homeowner to keep them in their home through loan modifications, so it’s not uncommon for some homeowners to stay in the home/continue to own a home for up to a year or more without a foreclosure notice even being filed.

The Complaint for Mortgage Foreclosure is the initial foreclosure filing, which is the beginning of the 7 month period (legally 210 days in Illinois) in which the homeowner may remedy their situation in order to avoid a foreclosure auction. During this time, the homeowner may try to sell their home, bring the terms of the mortgage current, or negotiate a new payment arrangement with their lender, to avoid their home being sold at public auction.

If none of the above options happen after around 7 months after the initial foreclosure filing, the lender or lienholder who filed the foreclosure suit has the right to schedule an auction date for the home to be sold at public auction. If the home is not purchased at auction, the lender repossesses the property. If no third party investor buys the property at auction, the title to the property will go back to the lender after the sale has been confirmed by the court, and after the quit claim deed goes back to the lender.

How will I know if my rental is in foreclosure, or if an auction date has been scheduled?

Most times you will be unaware, although newspapers do print public foreclosure auction sale dates. You can contact your County Circuit Clerk for foreclosure case information, or you can look your address up online on a service such as WatchIllinois, which will tell you if the foreclosure suit has been filed, and if an auction date has been scheduled. This online service will let you know by email when new public records are filed on a property or person via email. Check out WatchIllinois here

Who owns my rental?

During the time prior to foreclosure auction, your landlord still owns the property. While your landlord owns the property, your lease is still legal and valid.

Do I have to keep paying rent?

Yes! It is important for you to continue paying rent, regardless of whether your landlord pays his mortgage with that money or not. Pay your rent to your current landlord unless you get a written document from the court asking you to pay the rent to someone else. If you are responsible for any other utilities, etc., continue paying those as well.

When do I have to move?

You do not have to move out because the property is going through the foreclosure process, and if you do, you will be violating your lease with your landlord. Your landlord cannot force you to move without taking legal steps.

Obama’s “Protecting Tenants at Foreclosure Act of 2009” or PTFA protects tenant’s rights in situations where the property they are renting enters the foreclosure process. The PTFA took effect on May 20, 2009, and was originally going to expire on December 31, 2012. However, the Dodd-Frank Act changed the expiration date to December 31, 2014. Under this law, the immediate successor in interest of a dwelling or residential real property must provide tenants with a notice to vacate at least 90 days before the effective date of such notice.

Key Points of the Protecting Tenants at Foreclosure Act.

  • Applies to federally regulated mortgage loans.
  • Applies to foreclosures occurring after May 20, 2009.
  • Tenants are allowed to stay in the residence until the end of their lease with two exceptions: 1. When the property is sold after foreclosure to a purchaser who will occupy the property as a primary residence. 2. When there is no lease or the lease is terminable at will under state law. However, even when these exceptions apply, tenants must still receive 90 days’ notice before they may be evicted.
  • If there is more than 90 days left on the lease, then tenant can still stay until the end of their lease
  • If there is more than 90 days left on the lease, then the owner can give the tenant with notice to vacate 90 days before the end of the lease term.
  • Notice to vacate the property cannot happen until title has passed - The owner cannot file an eviction action in court until the 90 days is up.
  • The same rules as above apply to Section 8 rentals except that the owner may terminate the tenancy of the Section 8 tenant if the purchaser will occupy the unit as his or her primary residence, and provides the tenant at least 90 days prior notice to vacate.
  • Includes verbal / oral / and month-to-month leases.
  • Applies to any and all successors in interest, including banks that repossess property after auction.
  • Must be a “bona fide” tenant…meaning that the tenant is not the previous owner of the building, or a parent, child, or spouse of the previous owner; the rent is at or near fair market value; the lease was written as an arm’s length transaction
  • Applies to any dwelling or residential single family homes (1-4 units) and also multifamily (5 or more) units
  • During the foreclosure process, the tenant should continue to pay rent, as failure to do so could result in legal grounds for eviction. If the successor in interest will not take the payment or cannot be found, the rent should be put in an escrow account.

What if I don’t have a lease?

If the home goes to auction and the tenant does not have a lease, then the new owner can terminate the lease at will, although they are still required to give the tenant a 90 days’ notice to vacate the property.

Should I move into a rental home that I know is in foreclosure?

If you are considering moving into an apartment with a month-to-month lease advertised, or a home that is for sale, it is always a good idea to check the public records to see if the home is in foreclosure. You don’t want to uprooting you and your family’s lives only to have to relocate again in a short period of time.

Signs that your landlord may be in foreclosure:

  • Advertisements coming to the house that offer services such as "we assist homeowners facing foreclosure" or "we want to buy your house, cash offers"
  • Unable to reach your landlord or property management company for long periods of time
  • Coming home to a padlock on the door
  • Deterioration of the exterior of the building / no maintenance, lawn mowing, etc.
  • Traffic outside your house from interested parties or people taking photos/analyzing the home.

Advice for Tenants

If your suspect your home is in foreclosure or are receiving notice, it’s a good idea to contact your landlord to discuss. They may be hesitant or unwilling to tell you details about it, as foreclosure can be an embarrassing financial hardship, but it is always best to try to communicate. Make sure you stay in contact with your landlord to make sure he/she is the current owner, so you know where you should be paying rent, or who to contact for repairs. Remember, your landlord is NOT required to tell you that his building or your unit is in foreclosure unless you live in Chicago, although foreclosure is public record, and you or anyone else can look it up for yourself if so desired.*

Tiffany Brewington is an Illinois Licensed Realtor and Short Sale Expert with Chicagoland Residential Realty in Glen Ellyn, IL. Have a Foreclosure or Short Sale question? Please write to Tiffany Brewington

This information is not legal advice and is for informational purposes only. Please consult with an attorney for any legal advice.

Posted On: April 2012

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