Can you foreclose on a rental property

If your rental property is going into foreclosure, or if you have received a notice to vacate after a foreclosure, it is essential that you speak with an attorney about your specific situation. See the Legal Assistance Guide for more information on how to access legal services in your area.

If your landlord stops paying their mortgage the bank will often begin the foreclosure process to take back the building. The Trustee merely facilitates the process; they do not make decisions on who ends up owning the property. This notice does not terminate your tenancy; it only informs you of a pending foreclosure sale. Sometimes a landlord will remove the Notice of Trustee Sale so the tenant is not aware of the foreclosure.

It is a good idea to find out more information about the status of the property if you can. You can try researching or communicating with the trustee that sent the notice. If a Notice of Trustee Sale has been filed, you can also try doing a public records search in your county to see if they have more information. Remember, you must continue to pay rent up to and, in most cases, past the date of foreclosure sale.

Failure to do so could put you at risk of having an eviction lawsuit filed against you. If you know that a foreclosure sale date is coming, it may be a good idea to think ahead about documenting your rights to both the old and new property owners. RCW Also, you can use this sample Notice of Non-Abandonment to alert the mortgage company and any subcontractors that the home is occupied and not abandoned.

The new owner of the property after the foreclosure sale may not want you to vacate the unit. They may want to keep you on as a renter. Read more here about loan modifications, and read more here about the Flex Modification Program. A short sale is another alternative to a foreclosure, as is a deed in lieu of foreclosure. A short sale involves selling the property for less than the amount that is owed to the lender, which releases its lien in exchange.

The lender might agree to accept the proceeds of the short sale as a full satisfaction of the lien. Or the lender might continue to pursue the borrower for the remainder, which is known as a deficiency judgment. This is especially likely following a foreclosure of an investment property compared to a personal residence.

On the other hand, a deed in lieu of foreclosure gives the lender the deed to the property. In most situations, a deed in lieu of foreclosure should release the borrower from the debt entirely. If the property value is much less than the debt owed on the mortgage, however, a lender may retain the right to pursue the borrower for the deficiency.

This would amount to the difference between the debt and the fair market value of the investment property. Read more here about short sales and deeds in lieu of foreclosure. This program is available only until the end of and applies only to investment properties that have between one and four units.

More complex requirements may apply as well. As with the other alternatives discussed here, you will need to complete a loss mitigation application. You may want to discuss your situation with an attorney who is experienced in foreclosure issues before sending your application to the lender.

A landlord needs to be aware of the following rights and obligations of tenants living in properties in foreclosure. Under the federal Protecting Tenants at Foreclosure Act of , tenants living in foreclosed properties no longer have to worry about the termination of their leases upon foreclosure. This federal law allows tenants to stay in their homes until the end of their lease terms and gives month-to-month tenants the right to receive days' notice before having to vacate.

But this doesn't mean that you can quickly execute a lease renting the property out to yourself or your family before the foreclosure is finalized. There are two exceptions to the Protecting Tenants at Foreclosure Act: If the buyer of the foreclosed property intends to occupy the property, a lease may be terminated with days' notice. Also, only bona fide leases are protected under the act. A bona fide lease is a lease in which the tenant is not the borrower or the borrower's spouse, parent, or child; that was the result of an arm's-length transaction; and in which the rent is not substantially lower than the fair market rent.

Even before your property is sold at a foreclosure auction, you might lose the right to collect rent from your tenants. When you signed your mortgage loan documents, you probably signed a standard document called a Family Rider Assignment of Rents.

This document gives your lender the right except in Michigan to collect rent directly from your tenant after giving you a written notice of default and notifying your tenant in writing. Tenants whose leases are terminated prematurely due to a foreclosure sale might decide to sue you to recover the cost of having to move and pay any increase in rent.

Their lawsuits may be filed under two different theories. Fannie Mae and Freddie Mac are the largest owners of mortgages. The government sponsored-enterprises finance approximately half of the nation's home loans.

Fannie and Freddie prohibit a borrower with a foreclosure on primary or rental property in the past seven years from acquiring a conventional mortgage they back. The Federal Housing Administration FHA , which insures approximately one-third of mortgages, is more flexible but requires at last three years waiting period before financing someone with a past foreclosure. Hernandez has covered real estate topics since She is a licensed real estate salesperson in San Diego since Her articles have appeared in community newspapers but her work is mostly online.