So, you have been paying rent to your landlord and one day out of the blue a Notice of Default (an indication that your landlord's lender has foreclosed on the property) is plastered on your front entrance door. Chances are your landlord has been pocketing all of the rent money you've paid, and now the lender wants its property vacated.
Until recently, renters had very little recourse when the property they were renting went into default (due to lack of payment on the mortgage by the owner) and the lender takes the property back to resell it. But in 2009, Congress passed the Protecting Tenants at Foreclosure Act, which in essence gives you the right to remain in the property and cannot be evicted, except for actions that constitute good cause. Both Fannie Mae and Freddie Mac have joined the ranks of lenders (or in their case, mortgage guarantors) who are helping to lessen the impact on tenants when the home they are renting is foreclosed on. States like California and Florida have also adopted similar initiatives to help protect you from becoming the innocent victim of foreclosure.
Fannie Mae and Freddie Mac Take Steps to Protect You
If you rent a home from a landlord whose mortgage is secured by Fannie Mae, you have the option (under the Fannie Mae Tenant-in-Place Rental Policy) to sign a month-to-month lease if the property has been foreclosed. Under this policy, your only eligibility requirement is that you must live in the property when the home is foreclosed by Fannie Mae and you must sign a new month-to-month lease. That's all! Fannie Mae will manage the property (that is, collect the rent from you) through a contracted real estate broker or a property management company. You must be aware that Fannie Mae is not in the business of owning houses. So, they have the right to market the property for sale and to show it to prospective buyers. If the property is sold, the new owner will have to honor the month-to-month lease signed by you prior to the sale. And what about the rental amount Fannie Mae will charge? Well, under this policy, Fannie Mae will charge rents comparable to other rents in the same market or geographical areas in which the property is located.
Freddie Mac took similar steps in 2009 to ensure or minimize disruption in the lives of families whose homes were foreclosed upon. Under its REO Rental Initiative, Freddie Mac offers you the same option as Fannie Mae to sign a month-to-month lease as long as you meet certain criteria. In the event you opt not to sign a new lease, Freddie Mac will offer the option of relocation assistance. If you accept neither option (lease or relocate), Freddie Mac offers you yet another incentive under their "cash for keys” agreement. In this scenario, Freddie Mac will give you an agreed upon amount of cash if you "vacate the home by the date specified in the agreement and leave the home in “broom-cleaned” condition, free of personal belongings and debris".
Again, both of these government-sponsored companies have taken some progressive steps to minimize the impact of foreclosure on owner-occupied families or renters who would otherwise face the reality of an eviction when the property is taken over in foreclosure. And while the steps taken seem to only favor you as a renter, there are certain criteria (such as proof that you can pay the rental amount) that must be met before you can exercise your options.
What the States Are Doing to Assist You
In much of our country, renters have become victim to being in the right place at the wrong time. Because renters, not owners, are steering the real estate market today, something needed to be done at the state level. And to that end many states (or as many as the 48 contiguous states) have enacted laws which promote that a renter's voice is heard at foreclosure proceedings.
In Florida, for instance, if you are not made a party (are not named in the foreclosure proceedings) then you cannot be evicted and your lease cannot be terminated until it has run its course. A 90-day notice to vacate must be given to renters in California when the property they are renting is foreclosed upon. In some cities, local laws prohibit foreclosure evictions and these laws supersede (or have more weight than) the Helping Families Save Their Homes Act enacted into federal law in 2009. In most cases, states are allowing you the right to stay in your home after foreclosure for 90 days or through the term of the lease.
The National Law Center on Homelessness and Poverty (NLCHP) has done a fair job at summarizing the state-by-state processes and procedures regarding tenants' rights in foreclosure proceedings. And you as a tenant must know that you have rights. There are folks (attorneys, civil rights activists and advocacy groups) in the trenches ensuring that you are not the innocent victim of foreclosure.
Things and Phone Numbers to Know
If you're a renter whose property has been foreclosed upon, you have rights and laws that protect you and aim to minimize the disruption a foreclosure can impose on your life. According to Freddie Mac and Fannie Mae, your options and requirements are pretty straightforward, and are not limited to:
- Receive a 90-day notice to vacate (increased from 60-day prior to 2009)
- Sign a new month-to-month lease with the new owner
- Proof that you can pay the rent
- Request relocation assistance if you opt not to sign a new lease with the new owner
- Receive a cash payment if you vacate the property before the 90-day notice expires
- Allow the new owner to market and show the property to prospective buyers and real estate brokers.
Who to Call
Fannie Mae Resource Center at 1-800-732-6643
Freddie Mac Headquarters at 1-800-424-5401
National Law Center on Homelessness & Poverty at (202) 638-2535
Michael Rodriguez - Mike Rodriguez is an accounting and finance professional with more than 12 years of experience in government, public utilities and ...
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