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If you’re making rent payments to a property owner, you may worry about what happens to you with a landlord behind on your mortgage.
Renters have obligations to their landlords, but what is the obligation a landlord has to ensure the security of their rental property? What can a renter do if their landlord is falling behind on their mortgage payments?
There are a few options for during and after the process of foreclosure, if the landlord isn’t keeping up with the mortgage on the property. Although a landlord may not be doing anything against the law by refusing to pay their mortgage, a tenant still may have some recourse to avoid adverse outcomes from a situation that isn’t their fault.
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While it is true that renters cannot stop paying rent according to their leases, federal law does have some ways of protecting tenants experiencing “rent skimming”.
Rent skimming is when tenants pay rent on their lease, but the property owners don’t use the money to make the mortgage payment. Rent skimming is not illegal in most states! The landlord has no obligation to use rent funds for anything in particular.
In most cases, even if rent skimming results in foreclosure, it does not mean the tenant has a legal right to stop paying rent. However, North Carolina state law does have some options for protecting tenants at foreclosure.
Renting and the Tenant Obligation
Whether a person has a written lease or an oral agreement to pay rent money, they may not refuse to pay, even if the landlord misses their own mortgage payments. A landlord’s income from rental property can be used in any way the property owners wish and does not have to go toward mortgage payments.
If renters don’t pay according to their leases, they can face eviction proceedings, so even if the landlord is facing foreclosure based on non-payment, you must continue to pay rent. This does not mean you have no options overall, though.
In most states, including North Carolina, there is legal help for tenants during a foreclosure process. There are also resources available to landlords if they’re struggling to make payments.
Landlords and a Foreclosed Property
Your landlord has rights and responsibilities to the renter and the rental property. By law, the landlord must inform tenants if the property is sold to a new owner. Although a landlord does not have to inform tenants of any foreclosure process, this information is public record, and if the tenants at foreclosure act quickly, they can potentially avoid eviction.
Renters can contact an attorney for advice, but there are also government agencies that assist with protecting tenants at foreclosure. At both the county and state level, tenants can find a website that will document their rights and any obligation in the process.
A HUD-approved counselor is someone certified by the federal government to assist renters and homeowners. They can advise you on programs such as rental housing counseling and eviction prevention. They could also assist the owner; if the situation is due to accidental negligence and the tenants still have a good relationship with the landlord, this could be a good program to recommend to them.
For example, if the landlord loses the home to foreclosure, the tenant could still contact the lender to attempt to recover their security deposit. If you have contacted a law firm and have an attorney-client relationship, you or the attorney could also get permission from the new owner to remain in the property.
Resources for Tenants Concerned about Eviction
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There are government agencies, programs, and organizations whose business is assisting people experiencing problems with housing. An internet search can provide a potentially overwhelming amount of options. It’s often best to prioritize sources from federal or local government websites.
Other resources, such as a trusted real estate professional or a banker with whom you have a personal relationship may be useful. People who work in the industries of housing and finance are more likely to be aware of the options for someone facing housing insecurity or eviction.
Even if eviction isn’t imminent, these experts may be able to point you toward assistance. Generally, it’s better to start early, as soon as there’s a concern.
When Ownership of a Foreclosed Property Changes
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Foreclosures aren’t ideal for a tenant, but you may not have to vacate the property. If the landlord has failed their obligation to pay the mortgage, the bank may begin a foreclosure. Even if the proceedings cannot be stopped as the property is foreclosed, a tenant may be able to renegotiate a lease with the new owner.
It’s possible the foreclosure process has gone so far that the court has issued a notice to vacate the property by a certain date. Still, if the tenant contacts the new owner or the person who services the property, the tenants may be able to continue tenancy in the same rental unit with the new homeowners.
You could give notice to a new owner that you’d like to continue the lease agreement you’d had with the old owner. Therefore, you may be able to rent the same property, even after foreclosure.
Just because the bank has taken the landlord to court, doesn’t mean the tenants automatically face eviction. The ownership of the home can change, and the new lenders can continue to rent under similar leases. Just be sure to go through the appropriate channels with your county and state.
A New Lender, a New Lease
If you have avoided eviction when your rental property was sold, you may have negotiated a new lease. How can tenants at foreclosure act to protect themselves and their money with the new landlord’s services?
When an owner buys a vacant property under foreclosure, they may seek to rent it out under the usual channels. When the property already has a tenant, the owner should give the tenant notice that the property has been sold after the foreclosure. The new lender can then begin a new lease.
After a transfer of the mortgage like this, most legal help services will recommend that all parties on the lease file a notice with the court, so that the court and the bank have records of the agreement between the landlords and the renters.
Good for the Lenders, Good for the Renters
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It can clearly be stressful for anyone when a mortgage enters foreclosure. Whether or not landlords give adequate notice to their renter, there are still some options:
- rent skimming is the practice of receiving money for a property but not paying the mortgage on that property
- the tenant still has the obligation to pay on the lease, with or without notice from the landlord
- the landlord must give notice to the tenant if the property is sold
- foreclosure doesn’t have to mean the end of tenancy
- even if a bank foreclosed on a property, the tenant can start a lease with a new landlord
If your landlord is falling behind on their mortgage, it doesn’t have to mean you’ll lose your house. You may have been responsible with on-time payments and still have a landlord who didn’t keep up with theirs.
Although you have some obligation to pay the landlord according to the terms of your lease, you also have options if a new landlord secures the property from the previous owner. In some instances, a new owner can offer better terms than the previous owner.
You Have Options, and There is Help
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Although the average person may not be aware of all their options when it comes to renting, there are services that can help. If you hold up your end of the lease agreement, you may be in good standing to remain in the home, even if it changes ownership.
Federal law has some protections in place for renters, but it’s natural to need help from outside organizations. You don’t need to be an expert on housing law to be able to stay in your house; you can always reach out to those who are!