Tenants Should Negotiate With Landlord After Mortgage Default and Foreclosure
Question: My boyfriend and I are ASU students, and we rent a condominium in downtown Phoenix. Our one-year lease expires June 30. We were quite surprised when we received a notice last week from the bank stating that there will be an auction by the bank of our condominium in the next ninety days. We then contacted our landlord and he informed us that he has defaulted on the mortgage because he stopped making payments to the bank several months ago. We want to stay in the condominium until June 30 when school ends. Do we continue to make our rent payments to the landlord until the auction? After the auction will the bank let us stay in the condominium until our lease expires? Is our landlord or the bank obligated to refund our $1,500 security deposit to us when we move out?
Answer: Under the new federal law effective May, 2009, a tenant is generally entitled to stay in the rented premises after the foreclosure sale until the term of the lease expires. The lender or third party buyer at the foreclosure sale, however, has no obligation to refund your security deposit to you when your lease expires June 30. On the other hand, your landlord not making the mortgage payments for several months is probably an “anticipatory breach” of your lease. Therefore, you may not have an obligation to continue making rent payments to the landlord. I would suggest, however, that you negotiate with the landlord for the return of the security deposit to you now in exchange for you continuing to make the rent payments to the landlord if you stay in the condominium.
Note: The bank has the right to have a receiver appointed by the court before the foreclosure sale to collect the rents and, in that event, you would have to make the rent payments to the bank’s receiver and not your landlord.