Can a landlord collect rent if the house is in foreclosure?
While the number of homeowners facing eviction has been reduced in recent years as cases have been resolved, there still remain properties that remain in the foreclosure process. In many of these cases, the files have sat in the court, untouched and unmoved, as creditor banks decide which properties are worth (and not worth) foreclosing upon. In many instances, these properties have tenants living in them. In these cases, can a landlord collect rent if a house is in foreclosure?
Before getting to the answer of whether a landlord can collect rent if a house is in foreclosure, it would be good to take a step back and look at the different tenancies that can exist (at least here in NYC).
WHERE’S THE LEASE?
Without getting into any and every different circumstance, a tenancy is either going to have a valid and enforceable lease – or not. In any landlord-tenant case, the first question should always be to ask whether there exists a lease and, if so, what kinds of rights and liabilities are created by the lease. When there exists a valid and enforceable lease, all parties – landlord, tenant, bank – are all bound by the terms of the lease. When there isn’t a valid and enforceable lease, then defaults in the law generally apply.
WHO’S HOUSE IS IT ANYWAY?
Returning to the question of whether a landlord can collect rent from a tenant when the property is in foreclosure, it’s instructive to take a look at what constitutes ownership here in New York. New York is what’s called a title state. That is, a person has an ownership interest in property as long as their name appears on title to the property. For instance, in the case of real estate, as long as the deed to a house has a person’s name on it, they have a legally enforceable interest in the house. Same with a car – if a person’s name is on the title as owner, they have a legally enforceable interest in the car.
Often, I’ll meet with a person who advises that a family member or friend’s name is on a deed. They go on to share that the person doesn’t really own the house, he or she was just part of the mortgage and on the deed to help buy the house. Well, guess what? That person has an enforceable ownership interest in the property.
DOES A FORECLOSURE CASE TERMINATE A LANDLORD’S OWNERSHIP INTEREST IN A HOUSE?
Now that we’ve established who has an ownership interest in real estate, the next question would be whether the commencement of foreclosure proceedings terminates a person’s ownership interest in real estate. Generally, the procedural roadmap for a foreclosure case is as follows:
- Homeowner/landlord defaults for several months;
- 90 day foreclosure notice is mailed to homeowner/landlord;
- Summons and Complaint gets filed and served on homeowner/landlord;
- Foreclosure settlement conferences are held, if the parties agree, to explore whether a non-foreclosure resolution can be reached;
- Assuming a non-foreclosure resolution cannot be reached, the plaintiff creditor moves the case forward to judgment of foreclosure and sale;
- After getting judgment, plaintiff creditor will move to have a referee determine the amount owed;
- Once the referee’s report is filed, the property is then scheduled for auction;
- If there is a buyer, a closing takes place shortly after the auction, giving a deed to a new owner.
This process can take years to complete. Throughout that time, a property owner can attempt to resolve the foreclosure before the case gets to judgment through options including loan modification or refinancing.
CAN A LANDLORD COLLECT RENT WHILE IN A FORECLOSURE CASE?
We’ve covered most of the important elements that matter to this question, and now it’s time to answer it. When it comes to whether a landlord may continue to collect rent from tenants when the property is in foreclosure, the answer is generally yes. The landlord (presumably property owner for this conversation) continues to own the property until it is sold at auction (or otherwise transferred). The only party that may be able to collect the rent from a tenant when a property is in foreclosure would be the creditor that holds the note. (In many notes, there is often a provision that the noteholder, in case of a default by the borrower, take steps to protect its interest in the property, including to collect rents from the property.) Thus, unless a tenant receives notice from the noteholder or a new owner that they will be collecting rent, the landlord, although fighting foreclosure, may continue to collect rent.
Over the last ten years, foreclosure has become pervasive in our country. While the amount of cases have wound down, there still exist plenty of properties that are in foreclosure. Until the property is sold at auction or otherwise transferred, the landlord still owns the property. As a result, the landlord may still continue to collect rent. If other parties approach a tenant and declare that they are the new owner, demand proof or don’t pay the rent – set it aside and, if you’re sued in a landlord tenant case, bring the money to court so the judge can determine who should receive the rent moving forward.
If you are a landlord seeking to evict a tenant or collect unpaid rent, or if you’re a commercial tenant that’s facing eviction, contact the Law Office of Richard Kistnen today.
Law Office of Richard Kistnen
128-22 Rockaway Boulevard
South Ozone Park, NY 11420
Tel.: (718) 738-2324