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More Advice for the Tenants of a Foreclosed Landlord

Recently, a client wrote us:

“I am currently living in a condo in which my landlord was foreclosed on. We have been paying the condo fee, but haven’t heard anything from the bank. The bank has been in possession of the property for quite some time now and has never communicated with us in any way. I heard recently of a similar living situation in another state in which the bank charged the tenants for a significant amount of back rent. This has really concerned me and I am interested in getting some legal advice to determine whether or not we are susceptible to the same type of fees.”

The Legal Response:

The mortgage lender has no direct contractual relationship with you, or in legal terms, they have no “privity of contract” with you.   In most cases that should prevent them from being able to sue you.   In many cases, if the lender threatens you, and you throw that “privity” language at them, they change their tone and start talking about a cooperative resolution of the problem , i.e., “how soon can you conveniently move out?” or “would it help if we gave you a “cash for keys” relocation stipend?”  Such stipends vary from $250 to $2500.    Occasionally, the the event of extraordinary hardship to the tenant, e.g., a handicapped single parent, they  offer more.

On the flip side, if I am advising a lender who has just foreclosed on a property, I advise them to file immediately against “occupant” for possession, as if the occupant had no contractual rights to live in the house.    The lender may thereby treat the occupant as a trespasser or something similar.   That leaves the lender with the quickest possible access to the property to try to prepare for market to recover their lost investment.    Even if they file the day of the foreclosure auction, it generally takes a minimum of 3 weeks to get it into court in most of Virginia.   The time period often depends on how you are “served” with notice of the lawsuit or “Due Process”.   Keep an eye out for things in your door, on your door, rubber-banded to your door knob, etc..   If a sheriff or private process server is willing to certify to the judge that they posted notice on your door, the judge is going to believe them 9 times out of 10.   You will be considered to have knowledge of the eviction and possession will be awarded to the lender.  So don’t hide your head in the sand.  ..  be on the lookout for posted notice.     The good news is that even after the judgment is rendered in small claims court for possession (almost never happens faster than 21 days after auction but sometimes takes 45 days or more), you still have at least 10 days to move out.  Only a sheriff serving a “writ of possession” on you can actually allow someone to forcibly start removing your possessions or person from the property.    Such writs are never issued by the court until 10 days expire for appeal of the original order of eviction.   The one exception would be if you appeared to be abandoning the property, leaving it wide open, allowing terrible vandalism to occur, or some other exigent circumstance.  So far, all of this has only affected your right to stay in the property.  It should not lead to a judgment against you for rent or other moneys.

Finally, there is a new and beefed up addendum to some mortgages called an Assignment of Rents.     I fully anticipate that some lenders are trying to use the assignment of rents to create privity between you and the lender!     Basically, they are trying to step into the shoes of the landlord owner by virtue of the owner’s default.   If the judge allows this “subrogation”, then he might well find for the lender in the eviction and claim that any unpaid rent that you owed the owner is now owed to the lender.    It behooves you to save every claim or cause of action you may have against the owner/former owner/landlord and throw that at the lender!   You can only do that if you show up in court to defend the initial eviction hearing.   It will be hard to use the defaults by the former owner to stop the eviction at any later stage of the eviction.   But if you show up and just sit and listen to the court proceeding on the initial day of the eviction, you can make sure the lender’s legal representative doesn’t ask for monetary damages against you (past due rent).  If they don’t  ask for money,  then you can stay quiet and just listen and you don’t have to enter an appearance before the judge.   But if they do ask the judge for rent, it would make sense at that time to bring to the judge’s attention that your former landlord “constructively evicted me from the property months ago by not servicing the HVAC!   We were cold all winter, now we are hot this summer.  The roof leaks and there is a leaky pipe in the attic from the water heater and it has created a mold and mildew problem in one of our walls, my kid can’t same to get over pneumonia.  Finally, one child got the plague from flees that have infested the house form rats that have come in through a broken window we asked the landlord to fix last winter  . . .   we want a continuance to counter-sue for damages.”     Again, I think the lender’s legal representative is very unlikely to have help from the former owner to contest any of your claims and will be very willing to work out a cooperative resolution with you once you make your claims.

Don’t be intimidated.  You hold a few cards and you can always threaten to hire us!.