What Happens to the Renters When a House That Is Being Rented Out Is Foreclosed On?

If the property owner stops paying the mortgage, you may be on the move.

If the property owner stops paying the mortgage, you may be on the move.

Renters are at the mercy of the property owners, lenders and the law. If the owner doesn’t make the mortgage payments, the lender may foreclose and sell the property. Congress approved the Protecting Tenants at Foreclosure Act in 2009, creating notice requirements and establishing guidelines for lenders. This law was originally effective through 2012 and later extended to 2014.


Foreclosure is between the property owner and the lender. Renters aren’t direct parties to the legal transaction and may be the last to know of foreclosure. The lender takes ownership of the property at foreclosure and tries to sell it to a new owner. If the lender can’t sell the property, it may hire a management company to communicate with tenants. Some lenders try to manage rental properties until they sell them, but management from a lender’s perspective may stop at counting the money. Once again, the tenant is at the tail end of the transaction.

Lease or No Lease

Whether you have a lease or not, you should receive notice of foreclosure at least 90 days before you must move. The foreclosure has probably already taken place when the lender or the new owner informs you. If you don’t have a lease and are renting month to month, the new owner can force you to move after notice of 90 days. A lease survives the foreclosure. You don’t have to move until the end of the lease unless the new buyer intends to occupy the property as a primary residence or the lease allows for termination at will.

Cash for Keys

If a lender forecloses on your rental property and doesn’t sell the property, it may offer you a deal to move out early. Some lenders give renters cash to move peacefully and quickly and leave the premises in good condition. Lenders aren’t usually big spenders on maintenance or improvements, so you might consider moving as early as possible. With a cash-for-keys offer, you can move before the 90-day notice is up with cash for a deposit on your new location. If the property sells to a new owner, you may get a move-out offer as well. This is where being left out of the transaction gets sticky as you may not know the players. Check with the lender to be certain you’re dealing with the new owner before signing anything or making commitments.


If you paid a deposit, you might be able to get it back from the original owner. States regulate security and damage deposits for rental properties. Read any notices you receive, checking for information about your deposit. Most states give property owners up to 45 days after move-out to return deposits with an accounting for any deductions.

About the Author

Linda Richard has been a legal writer and antiques appraiser for more than 25 years, and has been writing online for more than 12 years. Richard holds a bachelor's degree in English and business administration. She has operated a small business for more than 20 years. She and her husband enjoy remodeling old houses and are currently working on a 1970s home.

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