What law says my lease is gone?
December 4, 2009 8:02 PM   Subscribe

In Texas, is there a specific law or section of law that says a tenant's lease goes poof when a landlord's property is foreclosed on by the bank, or is it one of those situations where a whole body of law and court decisions are added together to make this situation?

I have (had?) a lease in Texas with a company that owns a small less-than-20-unit townhouse building. The lender has foreclosed on this building and posted notices on all the units that reads: "Dec 1, 2009. As of this date, $bank is now the owner of this property. Please mail all rents payable to $bank to $address." I checked the county records and the building had been posted for a foreclosure sale on December 1st, plus I called the person whose name was on the letter (identified as an "Executive VP in Charge of Lending and Finance" or some amazing title) and specifically asked: "What happened, did your bank foreclose?" The answer was yes.

From what I have been told, this now means my lease has gone the way of the dodo. I fully intend to take advantage of this fact, but since the bank is now the owner, and they have nothing but money, lawyers and time, I would like to read the relevant sections of law that make this so. I have been reading Texas Property Code sec 91 and 92, but the only mention of foreclosure is to exempt a section relating to security deposits from banks that foreclose.

Considering I plan on delivering notice first thing Monday morning, I called a few local lawyers today, but they were out of the office or otherwise unavailable. I also tried calling the Austin Tenants Council, since it's their web page where I found this information (but not legal cites) initially, but they didn't answer the phone. To be specific, I'm not looking for legal advice, just pointers to an area by people who are better at reading law than me. Thanks in advance.
posted by fireoyster to Law & Government (6 answers total) 1 user marked this as a favorite
I am not your lawyer, and this is not legal advice. It is good that you are seeking advice from local lawyers.

In general in the United States, foreclosure terminates leases (though of course there may always be exceptions). In Texas, you want to check out Title 5, Chapter 51 of the Property Code. The provision which explains what happens to a leaseholder after a foreclosure, though, looks like it's in Chapter 24, § 24.005:
If a building is purchased at a tax foreclosure sale or a trustee's foreclosure sale under a lien superior to the tenant's lease and the tenant timely pays rent and is not otherwise in default under the tenant's lease after foreclosure, the purchaser must give a residential tenant of the building at least 30 days' written notice to vacate if the purchaser chooses not to continue the lease. (Emphasis added.)
I've boldfaced that last bit because, as seems to be the case here, the purchaser (i.e., the bank) is attempting to continue the lease. A tenant's typical experience with foreclosure (espeically for residential properties) is that their lease will in fact be terminated. Indeed, this was the impetus for the federal Protecting Tenants at Foreclosure Act of 2009 (part of the bigger Helping Families Save Their Homes Act of 2009). But it can often be a sound business decision for the new owner to continue leases, especially if the market for re-selling the property doesn't look attractive. That seems to be what the bank is doing here.

You of course do not wish to continue the lease. What is unclear to me is whether the bank can force you to abide by the terms of the lease. Section 24.005 makes it sound like the option is theirs, but I don't think that's dispositive. That chapter speaks specifically to evictions, not the broader question of the rights of purchasers of foreclosed properties - or the rights of tenants of foreclosed properties. It would seem unfair to allow the bank to unilaterally hold you to the lease, and this article (PDF) says that both parties' consent is required to continue a lease:
Finally, the Act grants tenants a “right” not an obligation to continue the lease. Barring unique facts including different language in the security instrument, Texas foreclosure law generally allows the new purchaser and the tenant to continue the lease by consent – it does not require either to continue the lease. Before the tenant can be bound to the new owner, the tenant must expressly or impliedly affirm the lease.
The "Act" in that quote refers to the aforementioned Protecting Tenants at Foreclosure Act, but the excerpt also makes it sound like existing Texas law also required the consent of both parties. And like I say, that only makes sense. And I think you've already realized this, but the next bit from the same article is also wise advice:
Thus, tenants who do not wish to continue the lease agreement with the new owner should think twice before continuing to pay rent without seeking the advice of counsel; otherwise, they may be deemed to have continued the lease agreement.
This might be a little tricky to navigate - you want to make sure you are up-to-date on your payments so that the bank doesn't try to come after you for the final month's payment, but you also don't want to accidentally pay for any time beyond what you need to, lest the bank interpret it as an attempt on your part to continue the lease. I would definitely want to ask a local attorney about your exact obligations in that regard.

Good luck!
posted by Conrad Cornelius o'Donald o'Dell at 11:01 PM on December 4, 2009


[O]r is it one of those situations where a whole body of law and court decisions are added together to make this situation?

The term you are looking for for this sort of thing (more or less) is "common law" - ie, law based on judicial precedent, rather than statute. I know I just cited a bunch of statutes at you, but one thing I did not find was something that explicitly says leases are terminated in foreclosure. There may be some other statute somewhere which says this, or this could just be common law, or it could be both! (Statutory law often codifies - or attempts to codify - existing common law.)
posted by Conrad Cornelius o'Donald o'Dell at 11:08 PM on December 4, 2009

Thanks for the extensive review, Conrad. What do you think of this? I found it while reading 24.005 that you linked earlier:

24.002. Forcible Detainer

a) A person who refuses to surrender possession of real property on demand commits a forcible detainer if the person:

(2) is a tenant at will or by sufferance, including an occupant at the time of foreclosure of a lien superior to the tenant's lease; or
posted by fireoyster at 1:55 AM on December 5, 2009

IANYL, but those are basic property law terms with more or less universal definitions.

A tenant at will is one without a term on his lease. These tend to be month to month. It's "at will" because it can be terminated by either party at any time.

A tenant at sufferance is one who has stayed on after his lease has expired but not been evicted from the premises. The landlord is "suffering" the tenant to remain, but has no obligation to do so. As long as the tenant continues to pay rent, the landlord may let them stay, but has the right to evict them--and the tenant has the right to leave--at any time.

These may describe your situation depending on how the relationship with the bank is defined. You're going to need to talk to a lawyer to establish that.

The specific provision you quote though has to do with a tenant in either of those situations refusing to leave the premises when asked. As long as you don't plan on doing this, it probably isn't something you need to worry about, especially as the bank has indicated that it is willing to have you continue to pay rent.

Still, as Conrad indicates, you really do need to talk to a lawyer if you're planning on doing anything other than paying rent until they ask you to leave and then going quietly.
posted by valkyryn at 6:17 AM on December 5, 2009

24.002(a)(2) is a little closer, but valkyryn is right - it doesn't speak to your rights in terms of continuing the lease. Again, it looks like you will be able to walk away, based on that article I linked above. But as valky notes, you'll still want to talk to a lawyer to confirm this. I'd be pretty surprised if whomever you talks to says, "Yeah, the bank can force you to stick with the lease," so if you hear something like that, get a second opinion.
posted by Conrad Cornelius o'Donald o'Dell at 4:03 PM on December 5, 2009

To follow-up on this: Notice was sent to the bank on the 7th (the 5th business day after the notice was received, so that rent would be considered "timely paid") advising that I was ending the lease as of the 18th and including a calculation and payment of prorated rent--based on the previous lease amount--for the 1st through the 18th. I hadn't paid the bank and I stopped payment on the check to the prior landlord. So far, neither the bank or the previous landlord have complained about my leaving, but I'm having to get stern with the prior landlord regarding my deposit.

Thanks a lot, Conrad and valkyryn.
posted by fireoyster at 7:58 PM on January 5, 2010

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