Do you still have to pay rent when property is in foreclosure?

In most situations, you must continue to pay rent to the owner of the rental property, even after you’ve learned that the landlord has defaulted on his mortgage and the bank has begun the foreclosure process. Your duty to pay rent to the original owner ends when the new owner records his or her deed. Two exceptions may apply, however.

Have You Heard from the Bank?

Sometimes, tenants must begin paying rent to the mortgage holder, the bank or lending institution that loaned money to the owner to finance the purchase of the property. If you receive a notice from the bank, directing you to begin sending rent to the bank, you must honor it.

These notices are a result of an agreement between the property owner and the lender that was made when the loan was taken out. The agreement is a rider to your landlord’s mortgage, called a “1-4 Family Rider (Assignment of Rents).” It gives the bank the right to get their hands directly on the rent if the owner fails to make his mortgage payments. These riders are legal everywhere except in Michigan.

Has Your State Stepped In?

Legislators in several states are beginning to appreciate the difficulties tenants find themselves in when landlords start to skip mortgage payments. All too often, the security deposit ends up being illegally used to pay the mortgage, and maintenance suffers. One creative way to ease matters for tenants is to allow them to demand that the landlord use the deposit in lieu of rent, once the tenant learns that the property is in foreclosure. That’ the Oregon approach, which also allows landlords who pull their properties out of the foreclosure process to demand that the tenant bring the deposit back to its original level within a few months. (Or. Rev. Stat. Ann. § 90.367.)