I am looking to buy a property at a forclosure auction, but there are currently tenants renting the property. Do I have to honor to current lease that the tenants have?
Thats a good question. I know if the property is offered for sale through a regular transaction you have to honor the lease and the tenant gets to stay until the lease ends (at least here in FL)
Check with your local real estate agency. They may know.
You are obliged to honor the lease. Why should the tenant's rights be compromised due to the financial misfortune of an owner? This is true with any purchase. Most of the time when I buy properties there are tenants in them. As the new owner I take over the lease position of the previous owner. This also happens with a foreclosure. The new owner takes over the lease position of the previous owner.
Are you happy with the rental rate that the tenants are paying? Are they paying? Are there any deposits up on their lease?
Most important questions. If happy let her ride. If they are not paying then you must file an Unlawful Detainer Action to evict them. I usualy try and buy them out or move them to cheaper quarters.
If there are any deposits up on the lease you are not responsible as the prior owners were the parties in contract.
Alright, here is a hypothetical…maybe not very realistic, but just for arguments sake…the tenants have a one year lease with a rent that is about half of the going rate. Am I stuck with this for the next year?
The fact is that I am not able to find out what the current lease situation is.
It is likely that you are stuck with the current lease. I am sure that the tenant knows the value of his/her position and will likely do everything to protect the lease.
You might also try to negotiate a new lease with the tenant-- maybe offer a two year lease at 3/4 market.
You did not indicate to us what the circumstances are. If you are buying a property with a below market lease you might be able to get consessions from the owner based on the low lease--lower price, soft terms on a note, etc.
Sorry, I forgot that you are looking at a foreclosure. You might knock on the door and tell the renter that you are looking to rent in the neighborhood and ask what rents are. Hopefully, you will learn what the tenant is paying.
According to the State Division of Real Estate: In Utah, a lease does NOT survive foreclosure proceedings. The new owner may, at their option, reinstate the tennant with a new lease but is not required to do so.
Just like any other claim/interest on the property this is a priortiy issue . If the lease was in existance prior to the existance of the encumbrance (I assume mortgage), then the lease has priority and will not be extinguished by the foreclosure. However , if the encumbrance had priority, then the lease has a junior position and is in fact extnguished (divested).
A tenant generally has more time to vacate the property after foreclosure than an owner-occupant. Check with your state statutes. As always, it would be better to use the carrot to vacate the tenants than a stick. Translation: Moviing money.
Thanks for all of the advice. I have tried twice the contact the tenant, but no luck. I'll look into the state laws related to survivorship of a lease.
I just found the following words in a Florida lease I found on the internet
"If the interests of Landlord under this Lease shall be
transferred voluntarily or by reason of foreclosure or other proceedings
for enforcement of any mortgage and/or ground lease on the Premises,
Tenant shall be bound to such transferee (herein sometimes called the
"Purchaser" for the remaining balance of the Term "
To lease or rent a property is one of the Bundle of Rights of a Fee owner. If the Owner has given up a Right (Such as the Right to Forclose to an unpaid lein holder) prior to the Tenant's lease/rental agreement, the Tenant gets the Property subject to this lein.
A Forclosure normally wipes out the tenant's right to occupy the property. Tenant probably can sue pevious owner.
I went through a similiar situation with a buyer and an investor. The buyer was living in a house for five years, one day the sherriff came and put signs up, They continued to do this for some time. The renter thought he was okay he paid his rent by check every month. one day he came home and the sherriff had put a BIG LOCK on the house. He went to the Sherriff Dept in the Court House. they told him the owner's never paid the mortgage and the bank was selling it at the auction. Well he contacted me and I set him up with an investor who had the perfect house for him. The Sherriff's deputy went and let him get his belongings out of the house. So I guess in Pgh once the house goes in foreclosure the BIG LOCK goes on and nothing gets in or comes out. Until the sherriff says so. He also had a lease and never missed a rent payment. I needed the cancelled rent checks for the purchase.
I guess every state laws are different and that might go as far as county to county.
Thats a good question. I know if the property is offered for sale through a regular transaction you have to honor the lease and the tenant gets to stay until the lease ends (at least here in FL)
Check with your local real estate agency. They may know.
You are obliged to honor the lease. Why should the tenant's rights be compromised due to the financial misfortune of an owner? This is true with any purchase. Most of the time when I buy properties there are tenants in them. As the new owner I take over the lease position of the previous owner. This also happens with a foreclosure. The new owner takes over the lease position of the previous owner.
Ed is as always correct.
Are you happy with the rental rate that the tenants are paying? Are they paying? Are there any deposits up on their lease?
Most important questions. If happy let her ride. If they are not paying then you must file an Unlawful Detainer Action to evict them. I usualy try and buy them out or move them to cheaper quarters.
If there are any deposits up on the lease you are not responsible as the prior owners were the parties in contract.
Hope it is in good shape. Lucius
Alright, here is a hypothetical…maybe not very realistic, but just for arguments sake…the tenants have a one year lease with a rent that is about half of the going rate. Am I stuck with this for the next year?
The fact is that I am not able to find out what the current lease situation is.
It is likely that you are stuck with the current lease. I am sure that the tenant knows the value of his/her position and will likely do everything to protect the lease.
You might also try to negotiate a new lease with the tenant-- maybe offer a two year lease at 3/4 market.
You did not indicate to us what the circumstances are. If you are buying a property with a below market lease you might be able to get consessions from the owner based on the low lease--lower price, soft terms on a note, etc.
Sorry, I forgot that you are looking at a foreclosure. You might knock on the door and tell the renter that you are looking to rent in the neighborhood and ask what rents are. Hopefully, you will learn what the tenant is paying.
This probably varies from state to state.
According to the State Division of Real Estate: In Utah, a lease does NOT survive foreclosure proceedings. The new owner may, at their option, reinstate the tennant with a new lease but is not required to do so.
Just like any other claim/interest on the property this is a priortiy issue . If the lease was in existance prior to the existance of the encumbrance (I assume mortgage), then the lease has priority and will not be extinguished by the foreclosure. However , if the encumbrance had priority, then the lease has a junior position and is in fact extnguished (divested).
A tenant generally has more time to vacate the property after foreclosure than an owner-occupant. Check with your state statutes. As always, it would be better to use the carrot to vacate the tenants than a stick. Translation: Moviing money.
Rup is correct and it is the same in Oregon.
Thanks for all of the advice. I have tried twice the contact the tenant, but no luck. I'll look into the state laws related to survivorship of a lease.
I just found the following words in a Florida lease I found on the internet
for the remaining balance of the Term "
"If the interests of Landlord under this Lease shall be
transferred voluntarily or by reason of foreclosure or other proceedings
for enforcement of any mortgage and/or ground lease on the Premises,
Tenant shall be bound to such transferee (herein sometimes called the
"Purchaser"
The following is my experiance:
To lease or rent a property is one of the Bundle of Rights of a Fee owner. If the Owner has given up a Right (Such as the Right to Forclose to an unpaid lein holder) prior to the Tenant's lease/rental agreement, the Tenant gets the Property subject to this lein.
A Forclosure normally wipes out the tenant's right to occupy the property. Tenant probably can sue pevious owner.
I went through a similiar situation with a buyer and an investor. The buyer was living in a house for five years, one day the sherriff came and put signs up, They continued to do this for some time. The renter thought he was okay he paid his rent by check every month. one day he came home and the sherriff had put a BIG LOCK on the house. He went to the Sherriff Dept in the Court House. they told him the owner's never paid the mortgage and the bank was selling it at the auction. Well he contacted me and I set him up with an investor who had the perfect house for him. The Sherriff's deputy went and let him get his belongings out of the house. So I guess in Pgh once the house goes in foreclosure the BIG LOCK goes on and nothing gets in or comes out. Until the sherriff says so. He also had a lease and never missed a rent payment. I needed the cancelled rent checks for the purchase.
I guess every state laws are different and that might go as far as county to county.
Lori
Just another view
[addsig]