What happens to my security deposit if my rental is foreclosed on?
I just learned that the house that I'm renting is being foreclosed on. I was served 2 weeks ago. I asked the landlord if I could use the deposit for rent this month and just go month-to-month. He said no, and he will start the eviction if I don't pay him today. I have no problem paying him but I want to protect my deposit. What can I do?
First of all, until legal title to the property passes, your landlord is still the owner. Therefore you must continue to pay rent to him (whether or not he is paying is his mortgage). Otherwise you do in fact run the possibility of eviction. The fact is that you must be careful to find out just when title to the property passes at auction or otherwise. Former landlords have been known to try and continue to collect rent even after they no longer own the property. That having ben said, as the lawful occupant of a property in foreclosure, you should be notified by the mortgage lender as to the sale/transfer date of the property. After this time, the landlord will no longer be the legal owner. You will then be informed where to send your rental payments.
Regarding the return of your security deposit, unfortunately there may not be much that you can do. Typically, a tenant’s only legal recourse in a foreclosure situation is to sue the landlord in small claims court if it their deposit, plus interest, is not returned to them. And, even though they may be win in court, actually getting the money that they are owed may be much more difficult given the owner's financial situation.
Note: Federal law does however give some other rights and protections to a tenant in the event that their rental is foreclosed on. Tenants who have a written lease can continue to occupy the residence until the end of their lease, or 90, whichever is longer; unless the new owner wants to live there in which case a 90 day notice to move would apply. Tenants on a month-to-month lease or no lease at all, are given 90 days in which to move. Additionally, some state laws give even more protection.