You might imagine that I, as a consumer bankruptcy specialist in Indiana, spend most of my time involved in bankruptcy court. But a good part of my work with clients involves foreclosure issues. Often I’m helping to negotiate settlements between homeowners and lenders, using strategies such as short sales, deeds in lieu of foreclosure, or some form of mortgage refinancing. I’ve been doing these things for almost twenty-five years. But, because of the severe mortgage and real estate crisis of the last two years, I’m involved more and more often with renters who are losing their home to foreclosure. In many of these instances, even before the housing crisis, a family or an individual was already financially squeezed for one or more of the usual reasons: job layoff, medical expenses, or divorce.

For home renters, discovering (often in very sudden fashion) that their home’s owner is now a bank or investment trust that wants them out, it’s a very difficult situation. Even if they’re allowed to stay in the home for now, the owners, stuck with properties they can’t sell, very rarely perform needed repairs or take care of the utility bills. At any time, the renters could be notified that they need to move. Tenants who don’t obey immediately could be served an eviction notice, and, with one of those on the record, it will be very hard to find another landlord willing to rent to them. I’m learning that this very situation is a lot more common than I realized – according to one statistic I read, more than one third of all foreclosures nationwide are rentals.

Do renters have rights? I’m finding out more about the issues. Leases are typically for one year. That means, in most cases, the mortgage predates that lease. As long as 30 days’ notice is given, the renters have no legal right to remain, because the rule is that foreclosure nullifies a lease if the mortgage was in place ahead of the lease. So, what can renters do? They could take the owner to small claims court, demanding reimbursement for moving costs, expenses for finding a new place, etc..

The irony about all this is that the smartest move on the part of the bank or real estate trust who has taken over ownership would be to actually keep the tenant in the house just as long as possible while the place is being listed for sale. Empty houses tend to drop in value without upkeep (often vandals target empty houses, too). I advise renters to turn the tables, asking the new owner for rent concessions in exchange for sticking around and keeping the house in decent shape. Foreclosures seem to be hurting everybody….