What Happens if My Landlord Goes into Foreclosure?
By: Alex Rechenmacher

We have seen that an economic recession can have severe financial consequences. In the housing market, we have seen a sustained, pernicious record of foreclosures around the country. Both owner-occupied and investment properties have been affected. When investment properties face foreclosure, the tenants often have been displaced without notice.

So what happens to a tenant when a landlord cannot make mortgage payments, resulting in foreclosure? First and foremost, a tenant has a possessory interest in that property, and therefore has the right to become a party in a foreclosure proceeding under Illinois law. 735 ILCS 5/15-1501(d) Furthermore, even a tenant's involvement in a foreclosure proceeding will not terminate their lease unless the Judge specifically orders as much in the Judgment for Foreclosure and, later, the Order for Possession.

The federal Protecting Tenants at Foreclosure Act of 2009 provides additional protections to tenants. Under the law, qualified lease agreements will allow most tenants at least 90 days to find a new home, even if the lease is month-to-month or expires during that period. Also under this law, if the bank forecloses and the new owner is not going to use the property as a personal residence, tenants can stay in the home at least until their lease expires.

So, while the landlord may lose its fee simple interest in the property, the tenant might be able to separately defend its right to possess the property, which is a separate legal right from the legal question of who has superior ownership rights.

This is both good and bad news for the tenant. It is good news because your rights to possess the property are protected, at least for a time, throughout the foreclosure proceeding of your landlord (which can last several months), as long as your lease still remains in effect. At the very least, tenants are entitled to notice and an opportunity to participate in the lawsuit. Also, the foreclosing lender may even agree to continue the lease with you following the completion of the foreclosure action.

On the other hand, as tenant, you must remain diligent and be responsive if you wish to keep your dwelling rights in the event your landlord suffers foreclosure. If you do receive proper notice and neglect to actively manage your legal rights, you may find your family soon evicted without a great amount of time to find a new place to live. Contact the Law Offices of Edward P. Graham, Ltd. if you want to protect your legal rights to your home.