What Happens When A Landlord Goes Through Foreclosure? What Will That Mean For You, As The Tenant?

While this may come as a surprise, if you’re a tenant, you could potentially face the possibility of your landlord going througlandlordh foreclosure on the property that you are renting. The unfortunate part of this situation, is that you, as the tenant, are often the last to know. This usually blindsides tenants, as they aren’t told until the very last second.

They then must run around and try to find a new place to live as soon as possible. Usually, the reason that they are the last to know, is because the owner has been spending months trying to avoid the situation. By the time you find out, it is because they have just realized that they have no other options. So keep in mind the owner hasn’t known for sure that the home is going to be foreclosed on, until right before they’ve told you.

When a homeowner defaults on their mortgage, the lender either becomes the new owner of the house, or they will sell it at a public sale. This doesn’t always mean that you have to move. Sometimes, the new owner will let you stay, as they want the house to use as a rental property as well. DE20120620-foreclosed-home

If a tenant is living in an apartment building, or a condo, sometimes they don’t even know that the property has transferred owners. Read: Renters Get Relief From Foreclosure Evictions.

They continue to pay rent to the former owner, who often pockets the money but no longer has any incentive to maintain the building it no longer owns. In the meantime, the new owners simply refuse to be landlords, never making repairs or even paying utility bills.

New owners may want to terminate existing tenants because they believe that vacant properties are easier to sell. Common sense suggests otherwise, and in many situations a building full of stable, rent-paying tenants will be more valuable.

To encourage tenants to leave quickly and save on the court costs associated with an eviction, banks sometimes offer tenants a cash payout in exchange for a quick departure. They may consider suing their former landlord in small claims court.

Small claims court is a perfect place to bring such a lawsuit. The tenant can sue the original landlord for moving and apartment-searching costs, application fees, and the difference, if any, between the new rent for a comparable rental and the rent under the old lease. Though the former owner is probably not flush with money, the awards in these cases won’t be very much, and the court judgment and award will stay on the books for many years. A persistent tenant can probably collect what’s owed eventually. For further reading, see: Tenant Eviction in Foreclosure: What Are Your Rights?


  1. It is not your responsibility to help the tenant find a new place. It would be nice of you to offer a 30 or 60 day notice; there are requirements on how long they have to move, but if you are able to extend it a little bit that would be nice. You do not owe them anything. Though it is an unfortunate situation for both parties, it is a reality.

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