Foreclosure on Your Property — They Stopped Paying. Have You?

November 2, 2016 · Coauthored by Joe Cloer & Susan Cook

If your rental property is in foreclosure, it can complicate your dispossessory. When you stop paying your mortgage, the foreclosure notices likely start showing up at the rental-property address. Your situation becomes very clear to your tenants when they get all those notices in the mailbox.

Lately, I had a case where the tenants presented evidence to the judge about foreclosure on the property from which they were currently being dispossessed; I had no idea that this property was in that state of affairs because the owner did not tell me. The foreclosure — and moreover my not knowing about the foreclosure — caused major problems in court. The tenants got crazy time and rent concessions because the owner could only sue for the unpaid rent before the foreclosure happened. My team never had a chance to develop a strategy that would have benefited the landlord, and we had to make a consent agreement with the tenant. If I had known to research and get a warranty deed, it turns out we could have gotten a judgment for more money for the owner; instead, I had to react right there, get what I could in consent, and walk away. We could not risk going to trial because the judge may have thrown out the entire case.

Don’t think you can hide foreclosure from a tenant. If you think tenants won’t open your mail, you are completely wrong. In fact, some mortgage companies will send mail to the house addressed to — CURRENT RESIDENT. It might as well say, “Hear ye, hear ye; we’re telling your landlord’s business.” Moreover, the tenant may then show up to court and tell the judge that you’re not paying, that you do not own this place anymore. Some judges will scold the landlord, dismiss the case, and send everyone away. If I know ahead of time that this stuff is going on, I can go get a warranty deed that shows you still own the house, or at least owned it up to a certain point, and take that proof to court. Otherwise, you may have a judge that lets the tenant have tons of time to leave and tons of concessions when it comes to paying you. You may get nothing if foreclosure is mishandled.

I know it’s bad. The tenant stops paying you, and then you cannot pay the mortgage. It can become a vicious cycle. But you must disclose this stuff to whoever you are working with at the time. And if you are doing a dispossessory yourself, you better have proof that you still have a warranty deed for the property, or had one up to the date of the dispossessory filing.