What happens when the bank forecloses on your apartment?

June 16, 2008 2:58 PM

We just found out that our landlord is facing foreclosure. How screwed are we?

My husband and I rent a flat in Milwaukee, WI. We found out today through public court records that a bank has filed for foreclosure against our landlord. We haven't heard anything from the landlord, but he's not the best at communicating things to us, so this is not shocking. We currently live here without a lease...my husband signed a one year lease in October 2005, but when it ran out the landlord never asked us to sign a new one. He just accepts our rent check every month, and we just keep living there.

We have no experience with foreclosures, so we're wondering what to expect. If the bank does foreclose on the property, what happens to us? Can we expect to stay in the apartment after the foreclosure? Will we get a certain number of weeks notice that we'll have to vacate? How long does a foreclosure take? We'd especially love to hear from anyone who has been in a similar situation. Thanks!

posted by christinetheslp to law & government (6 comments total)

I don't live in WI, so this is anecdotal at best. But a little bit of hope that you may not have to get out immediately -- when it was discovered that my boyfriend's rental house was actually in foreclosure, the bank offered up the house for sale to the renters, cheap. They also were permitted to live there rent-free for a couple of months while they got the paperwork all cleared up.
posted by desuetude at 3:23 PM on June 16, 2008

How many units in this property? If the flat is in a building that is devoted to rentals, my guess is that in the short term, you are fine. Creditors aren't going to be in a hurry to give up income on the property. The same is likely the case for any buyer that comes later, unless they are planning on doing a condo conversion, or doing major upgrades. I don't know how likely either of those are in your market right now.
posted by Good Brain at 3:25 PM on June 16, 2008

(I don't practice in Wisconsin, but foreclosures--which sometimes include residences with tenants--is a huge part of my firm's practice. This is, of course, legal information not legal advice; I am simply not your attorney and not telling you how you should proceed)

This information applies to a residential mortgage foreclosure with tenants. That is, a private residence being lease. The situation in a commercial apartment building (a commercial residential mortgage) is a little different, but not much. If the foreclosure is completed (that is, the property goes to sale and no longer belongs to your landlord. This does not always happen; about 30% of our residential foreclosures result in restructuring or reinstatement of the loan), you will be required to vacate the property within so many days (30 or 90 are most common) of the Order Approving the Foreclosure Sale. You should receive notice of this (In Illinois, you'd be receiving notice of every step in the foreclosure process). If you don't vacate, you will be evicted by the sheriff. Your lease is with the person whose mortgage is being foreclosed; you may have some minor statutory rights in your lease, but you have no rights in the property.

During the process, you may be offered "cash for keys"--this is a perfectly legitimate practice ,although it looks and feels shady, in which tenants are offered a nominal sum to vacate the property before the foreclosure is completed. Basically, they pay you to get out of the way of the judicial sale.

Any landlord-tenant legal aid organization will be able to assist you; check with the local law school and bar association if your state and city listings don't turn anything up. You may be able to request extensions of the time you're given to vacate the property. You will not really need a lawyer to do that, but you will need to know the proper forms and you absolutely will need to show up to court on time and not keep requesting them.

Remember, any deal your landlord makes to sell the house must pay off the entire balance owed on his mortgage or the bank will still end up owning the property unless the payments on his loan are being made. The first mortgage recorded against a property takes priority over pretty much any other claim to the property. So if the landlord sells it for less than he owes on it, and does not continue to pay off his mortgage, that mortgage can still be foreclosed. I mention this not because it's likely to happen, but because it may be that the amount owed on the mortgage is substantial, which means there will be no cheap purchase of the property by anyone other than the holder of the mortgage at the judicial sale. They will then write-off the loan in their corporate balance sheet and try to find someone to buy it for market value. If the amount owed on the mortgage is not substantial, the landlord may well be looking to sell it cheaply, just to get out from under the mortgage and out of the lawsuit.

If any of that makes no sense, just ask and I'll try to clarify.
posted by crush-onastick at 3:40 PM on June 16, 2008 [1 favorite]

Your lack of written lease may make it easier for them to kick you out. In many states, if a landlord keeps accepting rent payments after the term of a lease expires, the tenancy is considered month-to-month. What this means is that you only have a monthly lease, which the landlord agrees to renew when he accepts your rent payment. Depending on the state, the landlord usually can end the month-to-month tenancy with 30 days written notice, which in your case would mean you would get to finish out your current month, and then would have 30 days to vacate. As month-to-month tenants, you also have the right to terminate with 30 days written notice. On a practical level, the landlord might ask you to vacate before the foreclosing party does. One thing you might want to look into is to see if your landlord will renew your lease for a longer term in writing. Caveat: everything crush-onastick said still applies even if you get a written lease. (The usual disclosures that this is not legal advice apply.)
posted by Bezuhin at 4:23 PM on June 16, 2008

If it's near UWM you might be able to pay a visit to the legal clinic, even if you're not a student. There's some tenants' rights group on campus (check in the Student Union). I'd bet Marquette has something similar if you're down that way. Riverwest has some kind of community group that probably has resources. Sorry I can't be more definitive.
posted by desjardins at 8:37 PM on June 16, 2008

The circuit court will have a record of the foreclosure lawsuit, which will identify who owns the loan. A designated representative can then be chosen to contact that company to find out what its intentions are if the foreclosure goes through and if a buyer is not found right away, and to keep the lines of communication open. Despite the dire things that Crush mentions, it is not a foregone conclusion that all tenants will simply be cleared out. The very purpose of the building is to make money on rents. Whoever takes over may well want to keep rent-paying tenants in place.
posted by yclipse at 5:00 AM on June 17, 2008