Tenants living in homes or apartment buildings that are now in foreclosure are possibly the largest segment of Americans who have been forgotten during the foreclosure crisis. Many of them have leases in effect with landlords who have not paid the mortgage in months, and renters are also helping to finance the bailing out of the housing market, Wall Street, and possibly even the auto industry. It would seem logical for them to try and get something for nothing and stop paying rent, since everyone else seems to be doing it.

©jscreationzs, - freedigitalphotos

©jscreationzs, – freedigitalphotos

Unfortunately, renters living in homes that are going through the foreclosure process still have to pay rent as long as the landlord is the legal owner of the property and the tenants have a contract with him to lease his property for their own use. The contract will still remain in effect throughout the foreclosure, because foreclosure is a legal process that is dealt with over time in the court system.

Thus, just because a landlord has defaulted on his mortgage contract right now does not make the tenants’ lease contract with him void. However, if the mortgage does go all the way through foreclosure and he loses the home, then the renters will not have to pay him anymore. Since the foreclosure eliminates his ownership interest in the property and transfers it to the high bidder at the sheriff sale, the landlord has no more right to collect on the lease agreement.

In other words, landlords can not enforce the rental contract once the foreclosure is over and they are no longer the owner of the home. But until then, tenants have to keep paying if they wish to remain living in the property. And even after the house has been auctioned off, there will be a new owner who may decide to keep the lease agreement in place, so it would be a good idea for renters to continue saving money even after they no longer pay rent to the original landlord.

But if the landlord does manage to pull out some miracle and save the home before it is sold, tenants do want to be caught falling behind on rent payments. If this happened, the owner of the property could sue the renters to have them evicted or take their security deposit or any other damages he can obtain in court. This would be an especially bad situation for tenants to be in — refusing to pay rent because the house is in foreclosure, only to become the ones in default themselves if the owner fixes the situation.

Of course, this resolution of the foreclosure may seem pretty unlikely if the landlord is already numerous months months behind, but predicting the future is impossible. The owner could hire an attorney, or negotiate a mortgage modification, or have enough equity in the home to qualify for a foreclosure loan with a specialized equity lender. In any case, it is always better to be prepared for the best and the worst outcomes of a foreclosure.

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