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Tenants’ Rights Following Foreclosure or Short Sale of their Rented Home: Part 1

Seattle Short Sales - Monday, March 11, 2013

This article is Part 1 of a two-part series about the rights tenants have when the home that they are renting is threatened with foreclosure. This instalment discusses tenants’ rights when foreclosure is pending. Part 2 of this series will look at how much notice must be given to tenants to vacate the home in the case of a short sale, or following foreclosure and a Trustee Sale.

Not all underwater homes are owner-occupied. In many cases, homes that are threatened with foreclosure are rentals. How does the prospect of foreclosure affect tenants who are living in an underwater rental home?

The impact on tenants ultimately depends upon how the property owner chooses to deal with the threat of foreclosure, and how much they choose to communicate with the tenants about the situation.

Pending foreclosure:

If a property is going into foreclosure, according to recently passed Washington State law, the Trustee is required to give tenants of a rental property facing foreclosure a minimum of 90 days notice before the foreclosure sale date.The Trustee was already required by law to post notices of the foreclosure on the property, but the new law requires them also to mail notices of the foreclosure sale to the tenants. This foreclosure notice is not an eviction notice; it is simply to make sure that the tenants are informed about the situation.

A landlord who is facing foreclosure may choose to try to do a short sale, in order to avoid being foreclosed upon. It is generally easier to sell a property with tenants who are on a monthly lease than on a fixed-term lease, because the tenants can be evicted with 20 days notice if they are on a monthly lease; this makes the property more attractive to any potential buyer who intends to occupy the home.

For this reason, if tenants are on a fixed-term lease, landlords might approach them about converting to a monthly lease in exchange for an incentive of reduced rent. Tenants are not required to change the terms of their lease if they do not want to, but the reduced rent offered may make it worth their while to do so.

Tenants requesting a short sale:

Receiving notice that the home you are renting is facing foreclosure may open the possibility for some tenants to purchase the property as a short sale. If you are a tenant and are in the position to obtain financing, this is an opportunity not only to avoid having to move, but to purchase a home at a discounted price.

Most lenders will consider allowing a tenant to purchase a home that they are foreclosing on as a short sale, because lenders usually will recover more from their bad mortgage through a short sale than they will through the long process of foreclosure - especially a short sale with an interested buyer already in place. The landlord will also usually be open to a short sale, as it will be a faster solution, as well as much easier on their credit rating, than foreclosure would be.

If you would like to purchase the home that you are renting as a short sale, you should contact your landlord, the owner, as soon as you are aware that the property is in trouble. The sooner you get the short sale process started, the more likelihood you will have of succeeding with the deal.

The second instalment of this series will explain how much notice to vacate a property the owner (or new owner) is required to give tenants: prior to foreclosure, following a short sale, and following foreclosure.

Seattle Short Sales has a team of experienced and successful real estate specialists dedicated to working with distressed homeowners. We close, on average, 12% of all short sales per month in King County. In the last 24 months, we have negotiated over 756 short sale approvals, and discounted over $81 million of mortgage debt for distressed homeowners.

In addition to our short sales negotiators, our team includes dedicated professionals advising and advocating for homeowners in the fields of: loan modifications, bankruptcy, debt settlement and collection defense. As part of our service, we offer unlimited attorney and CPA consultations.

If you are a homeowner who is struggling to make ends meet, and would like to learn more about the options available to you, please go to: http://seattleshortsales.com/homeowners/ 


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