Massachusetts Foreclosure and Renters

May 30, 2010

By Massachusetts Bankruptcy Attorney, Kara O’Donnell, Esq.

What Are Their Rights?

Last year, Federal legislation (signed in May 2009) gave important rights to tenants whose landlords have lost their properties through foreclosure.

When the landlord defaults on a mortgage, the mortgage holder, often a bank, either becomes the new owner or sells the property at a public sale. (Or BOTH, if the mortgage holder simply buys its own property back at auction.) If the bank becomes the owner, it may pay a servicing company to handle the property. Tenants will then pay rents to the servicing company, but any maintenance needed will probably not be attended to as servicing companies are notorious for being elusive, absentee landlords.

Even before the foreclosure an investment trust can move in and buy the property. These investment trusts specialize in buying the defaulted loan directly from the bank, then foreclosing, evicting, and selling.

Many tenants face a situation where the new owners (after the foreclosure sale) refuse to be landlords, never making repairs or even paying utility bills. Because the banks are stuck with more and more foreclosed properties that they can’t sell, they do not maintain the properties and the tenants will suffer the consequences of lack of maintenance until they are evicted.

***Renters in Foreclosed Properties No Longer Lose Their Leases***
Before May 20, 2009, renters lost their leases upon foreclosure. But on that day President Obama signed the “Protecting Tenants at Foreclosure Act of 2009” which provided that leases would actually survive a foreclosure — meaning the tenant could stay at least until the end of the lease. Month-to-month tenants would be entitled to 90 days’ notice before having to move out.

The exception to this law is that if the property is sold to an actual person who intends to live on the property. Then, the buyer may terminate a lease with 90 days’ notice. The law also provides that any Massachusetts legislation that is more favorable to tenants will not be preempted by the federal law.

Does It Make Sense to Evict Tenants?
While some new owners choose to pay lawyers to start eviction procedures others will pay a fee to a management company to collect rent and manage the property.

“Cash for Keys”
To encourage tenants to leave quickly and save on the court costs associated with an eviction, banks offer tenants (or their landlords) a cash payout in exchange for their rapid departure. Thinking that they have little choice, many tenants take the deal.

With the 2009 federal legislation, most tenants with leases will keep their leases, and month-to-month tenants will have at least 90 days to relocate. Tenants with leases have no legal recourse against their former landlords, because they are in the same position with the new owner as they were with the old – the lease survives and ends as it would had there been no foreclosure.

However, a lease-holding tenant whose rental has been bought by a buyer who want to move in to the property ends up less fortunate as he may lose his lease with 90 days’ notice. Normally, the new owner has to wait until the lease ends.

Kara O’Donnell, Esq.
Quincy, Massachusetts

Posted by Kara O’Donnell


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