LEGAL NOTES

The sub-prime mortgage industry meltdown is now affecting renters, who are being victimized by con artists or landlords who have lost their rental properties through foreclosure.

When a Philadelphia woman signed a long-term lease on a rental home, she did what most new renters do—she began making her house a home. Little did she know that because of a foreclosure, she would be evicted in just a few months. She is just one of an increasing number of renters who are becoming unsuspecting victims in the nation's foreclosure crisis.

According to RealtyTrac, a company that tracks foreclosures across the country, the foreclosure crisis is worsening. Home foreclosure filings jumped 60 percent and bank seizures more than doubled in February as rates on adjustable mortgages rose. More than 223,000 properties were in some stage of default, or 1 in every 557 U.S. households. Nevada, California and Florida had the highest rates.

The number of foreclosed rental units, already in the thousands, is expected to increase in the next few years.

Common Scams
During times when there are a lot of foreclosures, housing-related scams increase. A number of rental scams have been reported in recent months. In one common scam, con artists study the default notices and scope out foreclosing properties. If the house is vacant, they break in, change the locks, and advertise the homes for rent. Unsuspecting tenants pay a heavy security deposit, and rent the house from these fake landlords. After paying rent for a few months, they receive a notice to quit from the foreclosing bank.

In some cases, even long-terms tenants who have a trusting relationship with their landlords are victimized. A landlord may continue to collect rent from these tenants for months after he has lost the building in foreclosure, as he or she has no legal obligation to inform the tenants. A foreclosing bank may choose not to collect rent in hopes that it will not legally be seen as the landlord of the building it now owns. The bank can also refuse to recognize any responsibility to existing tenants, including repairs and lease terms.

Options for Renters
In most states, including Nevada, when a homeowner faces foreclosure, the tenant has no guarantee that he can stay in the property, even if he already paid rent and a security deposit. To add salt to the wound, neither the bank nor the landlord has any legal obligation to inform the tenant of the foreclosure. In many cases, a renter has no idea that the foreclosure is happening until the sheriff shows up at the front door, informing the tenant that he must vacate the property in a few days or weeks.

Facing a sudden and unexpected eviction can cause numerous financial and personal problems. For most of these renters, their options are bleak. Often, tenants have trouble finding new housing arrangements. Others are unable to come up with a security deposit for a new rental home, as they may never recoup their security deposit from the foreclosed property.

When a home goes into foreclosure, most renters will lose their leases. The law in most states is that if the mortgage was recorded before the lease was signed, a foreclosure will override the lease. Tenants may not have to vacate the property immediately; however, their lease is usually terminated, reducing their status to month-to-month tenants.

Tenants who refuse to leave can be hit with an eviction lawsuit, for which they have little or no legal defense. If they go through with this, they may be stuck with an eviction on their record, hindering their credit and ability to find future housing. No law prevents a future landlord from rejecting tenants with evictions on their record, even if they were the innocent victims of a foreclosure.

What Can a Tenant Do?
In states where a lease can be overridden by a foreclosure if the mortgage was recorded prior to the lease, little legal recourse can be taken. However, a bill that recently passed the U.S. House of Representatives may help renters in this situation. It would give tenants who must leave the property because of a foreclosure, and who have leases, up to six months to vacate when their rental has been foreclosed upon. It has been approved by the House and awaits action in the Senate.

Usually, the best thing to do once a tenant learns of a foreclosure is to contact the attorney for the bank. They can try to negotiate either to stay on as a tenant after the foreclosure or to get an extension on the move-out date.

Disclaimer: The above is not intended to be, nor is it legal advice, and should not be relied upon for any reason. Even though this article maybe disseminated throughout the U.S., the material covers only Nevada law, and no other. E RealEstateExec and Exec MediaGroup, LLC expresses no opinion on any other state's law, nor about the handling of any particular legal situation. You should consult your attorney, accountant or business advisor before undertaking any action. No attorney-client relationship is created between E RealEstateExec, Exec MediaGroup, LLC and the reader.