Landlord Facing Foreclosure: Who Gets my Rent?

When a landlord faces foreclosure, it can create a tricky situation for you as a renter. You might suddenly have a property manager, a landlord, a bank as well as other entities asking you for the rent payment. If you’re not sure who you should make the check out to, here’s what the law says.

It’s the Lender’s Property Now

Once the landlord is foreclosed on, the property is officially owned by the mortgage holder (usually a bank). The landlord might ask you for the rent, but he’s no longer entitled to it. Banks usually notify renters in writing or in person that they’ve foreclosed on the property, and rents are now payable to them. If you receive an official notice like this from the bank, you should pay your rent to that institution, no matter how much pressure the landlord puts on you. Keep in mind that the landlord is likely facing serious financial troubles by this point. Don’t be intimidated by him or her. Simply show the landlord the notice from the bank and ask him or her to contact the bank if they have any further questions.

Maintenance Problems

If your landlord is in foreclosure, it can create a special set of problems if you have maintenance or repair issues with the apartment. Even though you’re paying rent to the bank, the landlord is still responsible for repairs. Since the landlord is broke, you might not be able to get the issue fixed. Usually the bank is under no legal obligation to make repairs on the apartment. However, state and municipal laws can vary on this issue. Some cities or states might require the bank to make the repairs.

Regardless, it never hurts to ask the bank to make the repairs and see what happens. Many states allow renters to make repairs on their own and deduct the costs from their next rent check (Arkansas is the only exception). Some banks will react negatively to this tactic, however, and you could end up with an eviction notice if you try it without notifying them.

Government Assistance

If repairs aren’t getting made to the apartment and your landlord is AWOL, it could potentially lead to unsafe living conditions. If things get really bad, a city housing department may be able to assist you. Contact the housing department in your area to see what your options are. In some cases, a government agency will be able to step in and force the landlord (or bank) to pay for repairs.

Security Deposit

When the apartment building changes owners, it doesn’t necessarily mean you’re going to lose your security deposit (although it’s likely). Your security deposit is supposed to be set aside in an interest bearing account. It’s illegal for the landlord to spend it, and he is supposed to turn it over to the mortgage holder once the foreclosure starts. If that happens, you can get your security deposit from the bank when you move out. If the landlord spent it (which is illegal), your only option may be to take him to small claims court to try to recover it.