If your landlord stops making their mortgage payments to the bank, that bank will often begin the foreclosure process to take back the property. Often times a bank becomes the new owner or sells the property at a public sale. If the bank becomes the owner, it may hire a servicing company to handle the property.
Foreclosure can also occur if the property taxes are not paid and a governmental agency takes possession. Your landlord then loses all rights to the property.
Your rights and duties won't change when your landlord is in foreclosure. You still have to follow the terms of your lease, you have to pay rent and whoever now owns the property still has to maintain the property.
Foreclosures can be complicated. When in doubt, always consult an attorney or contact Austin Tenants Council for guidance.
1. What happens to a lease if a landlord is foreclosed on?
The Protecting Tenants at Foreclosure Act (PTFA), permanently restored on June 23, 2018, (a) guarantees all bona fide tenants, even those with month-to- month or verbal leases, at least 90 days' notice to vacate prior to an eviction filing and, (b) allows bona fide tenants with written leases to occupy a property until the end of the lease term, except that the lease can be terminated on 90 days' notice if the unit is sold to a purchaser who will occupy the property.
Under PTFA, tenants with a Section 8 Housing Choice voucher have additional protections allowing them to retain their Section 8 leases and requiring the new owners to assume the contracts associated with the leases.
Note that tenants with leases of any kind, including month-to-month, are protected as long as the tenancy is in effect before the date of title transfer after the foreclosure sale and they are considered a bona fide tenant.
2. What is a “bona fide” tenant?
To be considered a “bona fide” tenant and entitled to protections under the PTFA, all of the following must be true:
(a) the tenant is not be a child, spouse or parent of the former owner;
(b) the lease must have been a result of a written or spoken contract, not a special deal between friends or family; and
(c) the rental amount must be a rent that is not substantially less than a fair market rent for the property, i.e., it is not discounted. If it is lower, it must be due to a government program that subsidizes the rent.
The burden of proving if the tenancy is bona fide is usually placed on the tenant during eviction proceedings. Consult an attorney or the Austin Tenants Council if you are unsure if you are a bona fide tenant and protected under the PTFA.
3. How much time does the new owner have to give the tenant to move out?
The new owner must:
(a) provide tenants with month- to- month or verbal leases with at least 90 days’ notice to vacate prior to an eviction filing, unless the tenant fails to pay the rent or otherwise violates the lease; and
(b) allow tenants with written leases to occupy a property until the end of the lease term and give at least 90 days’ notice to vacate prior to the expected move-out date, unless the new owner plans to reside in the property in which case the new owner may terminate the lease by giving the tenant at least 90 days notice.
Note that if you are renting month- to- month, or your lease expired and you are now renting month- to- month, the new owner must still give you at least 90 days’ notice before beginning the eviction process, unless you fail to pay the rent or otherwise violate the lease.
NOTE: A notice of pending foreclosure is NOT a notice to vacate.
4. Who is the new owner?
If a foreclosure occurs, you will be notified of the change in ownership. You can find out if a foreclosure sale has occurred or who the new owner is by checking the Real Property Records of the county clerk for the owner of the property.
Sometimes the county clerk’s office will charge you for copies of the information. If you suspect that foreclosure has occurred and you have not been notified, you can also send a letter to the current management company and ask whether a foreclosure sale has occurred. The letter should ask that the management company respond within 7 days from the date it receives your letter. We strongly suggest sending the letter by certified mail, return receipt requested, and regular mail. You should always keep a copy of your letter.
Be aware of scammers. Before paying rent to someone claiming to be the new owner, make sure it is the actual legal owner. Request a copy of the proof of ownership or contact your county clerk’s office.
5. Is the bona fide tenant required to pay rent during the 90 days or the duration of the lease term?
Yes, you must pay rent to the new owner. The new owner should give you written notice with instructions on payment of the rent. See ¶ 6 below. If you are a bona fide tenant and you do not pay rent after notice, the new owner may evict you for nonpayment of rent.
Before the foreclosure is finalized, tenants should continue to pay rent on time and to the management company or landlord, as laid out in the lease.
6. If the tenant pays rent to the current landlord and then receives written notification of a foreclosure, does the tenant also have to pay rent to the new owner?
No, continue to pay your rent as laid out in your lease. Until the new owner gives the tenant written notice that the property was bought and a name and address where to send payments, the tenant is not responsible for rental payments to the new owner.
Once the purchaser gives notice that it has purchased the property at a foreclosure sale and provides written notice of its name and address and requests the rent payment, the tenant has five days after receipt in which to pay the rent before it is considered late. See § 24.005(b), Tex. Prop Code. If the tenant has already paid the rent for the month to the prior owner, the tenant will first have to pay the purchaser the rent for the following month. In such a case, you should immediately notify the purchaser that payment was made to the prior owner.
While the foreclosure action is pending, a receiver or trustee may be appointed to manage rental payments. If a receiver or trustee is appointed, tenants should receive proof of appointment and information on how to submit rental payments to the receiver instead of to the landlord. Foreclosure actions and notices are filed with your county court. Tenants can request records about their specific property at their local county clerk’s office.
After the foreclosure sale is complete and title is transferred to a new owner, the new owner must provide notice to all tenants providing the new owner’s name and address and how payment can be received.
7. Is court action necessary for a property to be foreclosed on?
No court order is necessary for a lender to conduct a foreclosure sale on a defaulted home loan which is secured by a mortgage, unless the mortgage specifically provides otherwise. Typically, a 21-day notice will be sent to the mortgagor stating that the loan is in default and the property will be subject to foreclosure sale on the first Tuesday of the following month. If the landlord does not resolve the issue with the lender, the property will be offered for sale. All mortgage foreclosure sales (but not tax sales) in Texas are held on the first Tuesday of the month.
A tenant can find out whether property is posted for a foreclosure sale by contacting the local county clerk for postings. The county clerk must keep all foreclosure notices on file for examination by the public. In addition, if a county maintains an Internet website, the county must post notices of sale filed with the county on the website on a page that is publicly available for viewing without charge or registration.
(Note: Before a home equity loan, reverse mortgage, or transfer tax lien may be posted for sale with the county clerk, the lienholder must obtain a court order allowing the foreclosure sale to proceed.)
8. Who is responsible for the security deposit after a foreclosure and how does the tenant get it back?
If your deposit was not transferred to the new owner, the former landlord is responsible for refunding your deposit. As soon as this verification of foreclosure is received, the tenant should send a demand letter to the former landlord giving 10 days from the date the letter is received to return the security deposit. Sending this letter by both regular mail and certified mail, return receipt requested, is recommended. The landlord, however, may have the usual 30 days to refund the security deposit. The security deposit law does not provide a time period for refund of a deposit following a foreclosure, but it is assumed to be 30 days.
If the tenant moves out after the lease ends and then the property is foreclosed on, the landlord still has 30 days to refund the deposit.
Finally, if the landlord who holds the deposit files bankruptcy and lists the deposit as a debt, the tenant should be notified by the bankruptcy court of the bankruptcy and given notice of the right to file a proof of claim form and file it with the court. This ensures that the tenant’s claim for the deposit will be paid if there are sufficient assets to distribute to creditors.
In all cases, the tenant should make every effort to provide the holder of the security deposit with a current forwarding address.
9. Does the former landlord have the right to withhold any part of the security deposit after foreclosure?
No. This is the former owner of the property and not someone who holds the title to the premises. The former landlord does not have the right to walk through the property prior to returning deposit monies and cannot verify the condition of the premises. Therefore, the former landlord has no right to claim damages to the property and has no right to withhold any part of the deposit.
You may still have to pay the new landlord a new deposit if the new landlord enters into a new lease with you and requires a security deposit, even if the former landlord wrongfully holds your first deposit.
10. What happens if the landlord fails to return the deposit after receiving a written demand?
If 30 days have passed since you sent the prior landlord a written request for a refund and the landlord has failed to return the security deposit, Austin Tenants Council strongly urges consulting our office and/or a licensed attorney to get consultation on what your next steps should be.
11. What do I do if my home or apartment needs repairs or my utilities were shut off because the former landlord did not pay the bill?
The new owner becomes the landlord for all purposes after the foreclosure is finalized. Any repair requests or utility services (if the utilities were the landlord’s responsibility) are the new owner’s responsibility. You may be able to keep your utilities on by contacting the utility company and directly paying something to avoid shut-off even if the utilities are in the former owner’s name.
12. When is a new lease agreement created? What choices does the tenant have in entering into one?
The new owner may choose to continue the existing agreement the tenant had with the previous landlord or may ask the tenant to sign a lease with a different rental amount and other terms. In such a case, the tenant can decide to reject the offer of a new lease and to move. The tenant is not obligated to sign a new lease, but can give immediate notice and move. But the tenant is entitled to continue under the terms of the old lease for at least ninety days.
A tenancy can also be established with the new landlord through a verbal agreement or, implicitly, by payment and acceptance of rent.
13. If the tenant does not want to negotiate a new lease with the landlord, how much notice must be given to the landlord before the tenant moves out?
If a tenant has not established a new tenancy period with the new landlord through the payment of rent or by a new written agreement, then the tenant can leave. (Of course, a tenant should always notify the landlord or owner in writing that the tenant is moving and the tenant should return the key and get a receipt).
If a tenant has established a tenant-landlord relationship through the payment of rent, but has not yet signed a new lease agreement with the new owner, the tenant must give written notice to terminate this tenancy. The notice period should be based on the frequency of rental payments, for example if the tenant pays once a month, then a 30-day notice must be given. If a tenant pays every two weeks then a 14-day notice must be given, etc.
Once a tenant receives written notification that a foreclosure sale has occurred, the tenant may choose to move without fear of being held liable under the lease with the prior landlord. Of course, the tenant may be held liable for the reasonable rental value of the rental premises for the time between the foreclosure sale and the date the tenant moves out.
Always move out in a provable manner (i.e., clean the property, take pictures and turn in the keys with a witness who is over the age of 18 years, or get a receipt for the keys).
14. What do I do if the new owner offers me cash for keys?
The new owner may offer you money in exchange for vacating the premises. If you do not accept, you still have a right to finish out the lease term and receive 90 days’ notice so long as you pay the rent. The new owner cannot evict you if you do not want to leave before the 90 days is up and you pay the rent and otherwise comply with the terms of the lease. If you feel that the new owner is wrongfully evicting you, contact an attorney or the Austin Tenants Council.
15. Can I just move out?
Yes, you do not have to stay after the foreclosure sale. Again, always move out in a provable manner (i.e., clean the property, take pictures and turn in the keys with a witness who is over the age of 18 years, or get a receipt for the keys).
16. What claim does the new landlord have for damages to the property?
The new owner has no claim to any damages, except for those in which occur after the new owner acquired title. Normal wear and tear cannot be assessed to a tenant under any circumstances.
To prevent disputes, the tenant and the new owner should complete an inventory to document the current condition of the rental unit. If the owner does not provide such a form, the tenant should inventory the condition of the property anyway. Any documentation of the condition of the unit is sufficient, including pictures and/or videotape. The tenant should keep a copy and give the original to the landlord.
The information in this brochure is a summary of the subject and other pertinent matters. It should not be considered conclusive or a substitute for legal advice. Unique facts can render broad statements inapplicable. Anyone needing legal assistance should contact an attorney.
The Telephone Counseling Line provides education and information regarding residential tenant-landlord disputes. Lines are busy, and callers are encouraged to keep trying. Please call us at 512-474-1961.
The Online Counseling Program provides education and information regarding the rights and responsibilities of tenants and landlords. Fill out an online intake and an advocate will contact you!
The In-House Counseling Program provides 30-minute in-house counseling sessions to tenants and landlords who have questions regarding their rights or responsibilities.