Renters Have Rights During the Foreclosure Process

I write this blog post because this particular situation happened to me on Wednesday. This is a really long post, so be forewarned.

I live in a rental property in North Scottsdale, which, if you’re not familiar with the Phoenix area, is one of the most desirable places in the area to live. The owners of the rental property are friends of mine, and they were struggling to stay afloat. I knew when I moved in that the property was in foreclosure but felt confident that it would work out because they had retained an attorney to obtain a loan modification for them. Several weeks ago, the owners of my rental property filed for bankruptcy, which puts an immediate stay on any foreclosure process, or so I thought. Despite the owner being in bankruptcy and the automatic stay being in place, the lender placed the property on the auction list the afternoon before the sale.

If you’ve been following the stories about investors, there are bidding wars going on over short sale and foreclosed properties here in Arizona. As such, the fact that the house is in a nice area of Scottsdale sent the lunatic investors and real estate agents out in droves.

My mom, who lives with me, works from home during the day. I was at a client’s office when she called me in a panic because a realtor showed up at the house and told her that we needed to get ready to move out because she had a buyer for the home, which was being auctioned off the following day.

Excuse me? Since when did real estate agents have the right to walk onto a property and tell people to move out before their clients actually own the home?

It would have been fine if it had just been one or two realtors showing up at the home. However, things quickly escalated when the flood of people showed up. There were two men two trespassed and were walking around in the backyard and people attempting to walk into the front door unannounced. Several people threatened my mom by saying “We’re going to be living here in a week, so be prepared to move out within 24 hours.” 

As such, I prepared the signs below and stuck them all over the front of the house – on the garage, side gate, front window and front door – you couldn’t possibly miss them – they were everywhere.

ATTENTION!

THIS IS AN OCCUPIED RESIDENCE. FEDERAL LAW PROHIBITS A NEW OWNER OF FORECLOSED PROPERTIES FROM TAKING POSESSION IMMEDIATELY FROM RENTERS. CONSULT YOUR ATTORNEY FOR MORE INFORMATION.

OWNER IS IN CHAPTER 13 BANKRUPTCY, CASE NO. ________________ AND THERE IS AN AUTOMATIC STAY OF THE FORECLOSURE, SO ANY SALE IS INVALID AND WILL BE UNWOUND.

ATTORNEY CONTACT INFORMATION:
[left blank for this blog post]

IF YOU ATTEMPT TO ENTER UNDER ANY CIRCUMSTANCES, WE WILL CALL THE POLICE!

PLEASE RESPECT OUR PRIVACY AND THE LAW AND STAY OFF THE PROPERTY!

WE WILL NOT TOLERATE VIOLATIONS OF OUR RIGHTS AND WE WILL TAKE LEGAL ACTION AGAINST YOU FOR VIOLATIONS OF THE LAW.

YOU HAVE BEEN WARNED!

We watched from upstairs how these people kept showing up, getting out of their car, coming up the driveway, seeing the signs and then getting mad because we told them to stay off the property. One man urinated on the side of one of our cars!

As the afternoon passed and the people stopped coming, we thought the situation was over. And we were wrong. My mom returned home from the grocery store to find a man sitting in a car in the driveway waiting for a locksmith. He knocked on the door and asked my mom what she was doing inside the house. She told him she lived there, and he proceeded to tell her that he was part of an investment group that had purchased the home at auction that day and that he was waiting for a locksmith to arrive and change the locks on the door. My mom proceeded to tell her she was mistaken – there was no auction of the home that day.

Unbelievable! This man was going to change the locks on a door to a home he didn’t even own!

This story leads me into the point of this whole blog post: renters have rights throughout the entire foreclosure process.

A new Federal law passed recently, known as the Protecting Tenants at Foreclosure Act of 2009, which is designed to protect renters during the foreclosure process. If you’re a renter, you need to be aware of this law, and if you’re a real estate agent or investor, you also need to be aware of these rules to avoid getting yourself into legal trouble. In my situation, I knew what my rights were and took steps to protect myself, but there were a few things I could have done differently and saved myself some stress. I’ll share them with you so that you don’t find yourself in a similar situation.

Many times, renters have no idea that their homes are being foreclosed upon until a real estate agent shows up at the door the day before the sale and tells them that the home is being foreclosed upon. This is a stressful event!

This law prohibits a new purchaser of a foreclosed home from taking immediate possession of the home. All purchasers of foreclosed homes must give the tenant ninety (90) days notice before terminating the rental. If the tenant had a written lease agreement, the tenant has the right to remain in that home for the entire length of the rental period, unless the purchaser intends to live in the home as their primary residence. In that case, the new purchaser still has to give that tenant ninety days notice before they can kick them out.

State law may give a tenant greater protection during the foreclosure process. If so, the greater protection applies. Your state laws govern a renter’s right to a return of any last month rent and rental deposits and payment for any repairs to the properties. The federal law does not alter these state law provisions.

Throughout foreclosure, tenants have the right to a residence with functional plumbing, safe wiring and heat, free from toxins and rodents. However, these issues might be difficult to enforce if the bank is in another state and you have trouble contacting them.

So here are three things you, a renter, should do to protect yourself.

First, check your county recorder’s office to see if there is a Notice of Trustee’s sale pending on your property. I think everyone renting in the Unites States should do this at least once a month given the foreclosure problem in this country. Do yourself a favor and make sure there are no surprises lurking on public record.

If you do this before you rent a home, you could save yourself a lot of trouble. If the owner is in foreclosure and doesn’t tell you, you might be forced to move again in a short period of time. Furthermore, if the owner is in foreclosure, he or she is probably struggling and your money is going straight into their pockets. Once you hand over that money, it’s as good as gone and I wish you the best of luck getting it back. Small claims court anyone? That’s another blog post.

Second, if you have a written lease agreement, record it at the Recorder’s Office in the county where you live. If the property that you rent does go into foreclosure, anyone looking at the county records will know that the property is occupied. Recording gives the public constructive notice that you’re living there and that you have a lease agreement.

If I were an investor, I’d want to know if I was purchasing a property with a tenant in it, because of the additional costs of my investment. Ninety days would have to pass before the purchaser could get into the property to make any repairs or place a new tenant into that property.

Ideally, this will keep people from trespassing if your home is set for foreclosure, but I doubt the idiots who were traipsing all over my yard were smart enough to look at the Recorder’s office records before they decided to trespass.

Third, if you find yourself in this situation, you can use the above referenced sign to warn people to stay off the property. You have rights as mentioned above. That means no one can change your locks, harass you or remove you from the property. Call the police if this happens to you!

Finally, a warning to real estate agents and investors who think they can just walk onto a property and harass the occupants: don’t do it! You cannot legally do this.

First of all, it’s a mistake to assume that just because a property is going to be auctioned off that no one lives there.

Second, until the home is actually sold, you don’t own it! So don’t trespass on the property, or threaten or harass the occupants. Don’t change the locks on the home unless you are certain you actually own it.

Tenants maintain the right to the possession and integrity of their property during foreclosure. Mortgage holders or other creditors of the landlord have no right to enter the tenant’s dwelling or seize or remove cars, furniture or other property. This constitutes theft and could cost you dearly in terms of time, money and possibly jail time.

There’s another good reason to not act like a jackass when dealing with a tenant: you could find a gun in your face. I live in Arizona, which is a conceal carry state. You don’t know who’s packing a weapon. If you walk into someone’s home or are trespassing on their property, you could wind up with a gun in your face. People are stressed out these days, and many are just hoping for a reason to pop off. You could quickly find yourself in a dangerous situation by trespassing on someone’s property and harassing them.

Got comments on this post? Feel free to leave them below.

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