New rights for tenants living in properties in
foreclosure
by Heidi Wegleitner, Legal
Action of Wisconsin, Inc
Are you a tenant living in a rental unit that is facing
foreclosure? Are you a landlord facing
foreclosure of your rental property? Did
you recently purchase a foreclosed property?
Do you know your rights and responsibilities under new foreclosure tenant
protection laws?
New state and federal laws provide important rights to
tenants of residential housing involved in a foreclosure. The new state law went into effect
The federal “Protecting Tenants at Foreclosure Act,” Public
Law 111-22 §§ 701-704 (2009), protects all bona fide tenants in foreclosed
properties and applies to all foreclosure sales after the law was signed on May
20, 2009.
Tenant’s Right to Notice from the Landlord, Foreclosure
Plaintiff, and New Owner
The landlord must provide written notice to a tenant stating
the rental property is subject to a foreclosure action in court. If the plaintiff (usually a bank) has already
obtained a judgment of foreclosure in court, the landlord’s notice must also
state when the redemption period expires.
During the redemption period, the landlord has the right to refinance
and pay the plaintiff the money owed on the loan to keep the property, or sell
the property to pay off the loan. The
landlord’s right to redeem the property ends when the sheriff’s sale of the
property is confirmed at the confirmation of sale hearing. The confirmation of sale is the final court
action approving the foreclosure.
Rental agreements entered into after a foreclosure has been
filed in court must include a separate written statement signed by the tenant
that the landlord provided the required notice.
If the landlord does not provide the required notice, any rental
agreement entered into during the foreclosure action may be voided at the
option of the tenant.
The plaintiff must also provide notices to tenants living in
properties in foreclosure. The plaintiff
is required by state law to give notice at three (3) different stages in the
foreclosure process.
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First, notice of the filing of the foreclosure case must be
given no later than five days after the plaintiff filed the foreclosure with
the court.
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Second, notice must be given no later than five days after
the entry of the foreclosure judgment from the court. The notice must state that the judgment was
entered and give the date the redemption period will expire.
€
Third, when the confirmation of sale hearing has been
scheduled, the plaintiff must give notice of the date and time of the
hearing.
The state law requires all notices to be either personally
served on the tenant or sent certified mail with return receipt requested. If the plaintiff fails to provide the
required notice, the tenant may sue to recover $250 in damages and reasonable
attorney’s fees.
Additionally, the federal law requires the new owner of the
foreclosed property to give tenants renting the property at least 90 days
notice to terminate the tenancy. The
90 day notice should not be issued before the foreclosure sale is confirmed
because that is when the buyer of the foreclosed property gets title to the
property free from the foreclosure defendant and becomes the new landlord.
If the tenant renting the property entered into a lease
before the new owner issued the 90-day notice, the new owner may not terminate
the lease before the lease ends unless the property will be used as a primary
residence by someone purchasing from the new owner and the 90 day notice is
given.
Protections for Tenants in the Section 8 Voucher Program
The federal law requires the new owner to honor the existing
lease and housing assistance payment (HAP) contract of tenants who participate
in the section 8 voucher program. If the
new owner will occupy the property as his/her primary residence, the new owner
may terminate the section 8 lease and HAP contract if the new owner provides a
90-day termination notice. The new owner
may not terminate the voucher lease for “other good cause” based on the
business reason that termination would make it easier to sell the property.
Tenants Get More Time and Money to Move
The federal law allows tenants to stay 90 days after the new
owner gives the 90-day termination notice, or until the end of his/her lease if
it was entered into before the 90-day notice was issued. Remember, this 90 day notice must be issued
after the foreclosure sale is confirmed.
If the tenant remains after the confirmation of sale hearing, the state
law requires the tenant to pay the same rent amount required before the
hearing, except for the last month the tenant resides in the premises. The tenant may withhold rent for the last
month in the unit in an amount equal to the tenant’s security deposit. The tenant’s right to stay ends at the end of
the month the tenant withholds rent under this provision. The tenant may withhold the security deposit
amount the last month in the unit whether or not the tenant stays past the
confirmation of sale hearing.
Remember: This law is
very new and is subject to interpretation by the courts. It may be interpreted differently by
different courts. Each case is
different. This article is meant to give
you general information and not to give you specific legal advice. For specific legal advice, you should contact
an attorney.
Legal Action of Wisconsin provides legal representation in
order to achieve justice for low-income people and others to whom it would
otherwise be denied. Legal Action does
some foreclosure work. Depending on the
facts of your housing situation, they may only give advice, but if the
applicant meets their eligibility criteria, they would review documents and
evaluate for representation. Intake (by
call-in 256-3304 or walk-in,
Additionally, the
The above is intended to provide general information only
and is not a substitute for thorough and specific advice on an individual
case. Depending on the complexity of
your legal problem, you may need to consult an attorney for advice or
representation. The document was created
by the staff of Legal Action of Wisconsin, Inc. on behalf of low-income clients
and was funded by the Legal Services Corporation,