Tenants living in properties that are in foreclosure—either because the landlord has defaulted on the mortgage or failed to pay taxes—retain rights and protections under both federal and local laws. These protections differ depending on the type of foreclosure.
1. Mortgage Foreclosure
Even if a property goes into mortgage foreclosure, tenants generally have the right to remain in their homes:
- Lease-holding tenants can stay for the remainder of their lease, even after a foreclosure sale, unless the new owner intends to move in as their primary residence.
- Tenants without a lease are entitled to at least 90 days’ notice before eviction.
Typical Timeline of a Mortgage Foreclosure:
- The landlord (borrower) becomes delinquent and receives a 90-day pre-foreclosure notice from the bank or lender.
- A foreclosure lawsuit begins.
- The bank serves a Summons and Complaint to the landlord and must also notify tenants. This usually comes in a large legal packet.
- The landlord may:
- Respond or request a settlement conference,
- Refinance or negotiate a resolution, or
- Ignore the notice (often the case with absentee landlords).
- If unresolved, the lender seeks a Judgment of Foreclosure and Sale.
- A foreclosure auction takes place, and either the bank or a third party becomes the new owner.
- The new owner must show tenants the deed proving they own the property.
The mortgage foreclosure process typically takes about a year from start to finish.
Common Tenant Defenses in Foreclosure Evictions:
- The new owner did not serve proper 90-day notice;
- The new owner filed for eviction too early;
- The deed was never shown to the tenant;
- The Notice to Quit was defective or not served properly.
“Cash for Keys” Agreements
In some foreclosure situations, especially when a new buyer wants the property vacant, tenants may be offered money to move voluntarily. This is often called “Cash for Keys.”
Typical Offers:
- $5,000 for moving out within 60 days
- $2,500 for moving out within 30 days
- $1,500 for moving out within 15 days
- If the tenant does not move within the agreed timeframe, they still retain their 90-day right to stay, but will not receive the payment.
- If you have a lease and intend to stay beyond 90 days, you should contact the new owner, provide a copy of your lease, and document all communication.
Important Notes About “Cash for Keys” Offers:
- To receive payment, tenants must sign a written agreement with the bank or new owner outlining the move-out timeline and amount offered.
- If the tenant does not move out by the agreed deadline, they forfeit the payment, but still retain the right to stay for at least 90 days.
- If you have a valid lease and plan to remain beyond 90 days, you should:
- Notify the new owner in writing,
- Provide a copy of your lease, and
- Keep a record of all communications.
2. Tax Foreclosure
Tenant protections are different in the case of tax foreclosure, and in many cases fewer legal safeguards exist.
Key Differences:
- Tenants are not automatically entitled to stay for 90 days or through the lease term.
- Tenants are not entitled to a court eviction after the municipality takes title.
- Once the municipality owns the building, the sheriff may issue a 72-hour notice to vacate.
Typical Tax Foreclosure Timeline:
- The landlord fails to pay property taxes.
- The municipality mails a notice and petition for foreclosure.
- The landlord has about 3 months to pay or respond.
- If unpaid, the municipality waits approximately 6 months before taking title.
- After title is transferred, tenants receive a 72-hour notice to vacate from the sheriff.
Albany County Practices:
- Albany County makes efforts to notify tenants months in advance of taking title.
- No evictions are carried out during “Code Blue” months (when temperatures are dangerously low).
- The County avoids shelter placements where possible, as they absorb the cost.
- In some cases, tenants may be offered the opportunity to purchase the property.