Many rental tenants become aware, during their tenancy, that the owner of the property is being foreclosed, due to their failure to pay the mortgage. As occupants of the premises, the tenants may be served with a foreclosure Summons and Complaint, addressed to “John Doe” and/or “Jane Doe” as occupants, due to the foreclosing lender being unaware of the names of the rental tenants.
In such a case, the rental tenants should engage experienced counsel familiar with the legal aspects of the situation. The rental tenants have several options. Until the foreclosure is completed by an auction sale and legal transfer of the property to either the lender or the successful bidder at the foreclosure sale, a legal tenant is generally not subject to eviction. If the tenant has a current lease of at least fair market value, his is permitted to stay until his lease term expires. Even after their lease expires, in general, tenants will not be subject to eviction proceedings until after the property is transferred from its current owner through the foreclosure process. The new owner may then commence eviction proceedings in the local landlord-tenant Court after it obtains title to the foreclosure property.
However, in our firm’s experience, the tenant, having lived at the premises, may also want to attempt to purchase the premises and become the new owner. There are several ways in which this can be made possible. The first is to bid and purchase the property at the foreclosure sale. In order to do this, one must first ascertain the amount due from the current owner to their lender. As the lender wants to be paid back the monies due from the original owner, they will usually bid themselves up to a certain amount at the foreclosure auction to ensure that they obtain their “upset price” for the premises. For example, a borrower defaults on a loan and owes a lender $500,000.00. The property is worth $700,000.00. A tenant may bid more than $500,000.00, but less than $700,000.00 at the foreclosure sale. If she is the highest bidder, she is required to immediately deposit ten percent (10%) of her successful bid with the Referee (the individual conducting the sale), and generally has thirty days to close her purchase.
The second option is to attempt to purchase the property from the lender after the foreclosure sale. Let’s assume no one bids at the foreclosure sale, and, as the foreclosing entity, the lender then takes title from the owner. The lender may now be attempting to evict the tenant or tenants. The tenants, through their counsel may communicate to the lender an offer to purchase the property. If the offer is accepted, a Contract of Sale could be prepared and the tenant will become the new owner of the property after closing and can then remain living at the premises.
If you are a tenant living in a house or apartment that is being foreclosed, our firm has extensive experience in handling all possible outcomes, and welcomes all inquiries.