When foreclosure occurs, it drastically changes the tenant-landlord relationship.  A foreclosure means that the property owner has failed to keep the mortgage payments current with the lending institution (the lien holder).  The lien holder then takes possession of the property.  Foreclosure can also occur if the property taxes are not paid and a governmental agency takes possession. The landholder then loses all rights to the property.

Many questions arise as the result of a foreclosure and finding the answers can be a bewildering process that may involve the former owner, the lien holder, a new landlord, and possibly even the federal government.  This brochure attempts to answer some of the most common questions asked about foreclosures.

Foreclosures can be complicated.  When in doubt, always consult an attorney or contact Austin Tenants’ Council for guidance.

For further information, see the following ATC brochures: The Security Deposit LawFiling a Suit in Small Claims Court, and Who Owns This Place?

1. What happens to a lease if a landlord is foreclosed on? 
A foreclosure terminates the tenant-landlord relationship pursuant to the laws of the state of Texas. This means that the lease contract is terminated at the time of foreclosure. The only exception is Section 8 leases, which may remain in force.  Seek legal assistance in this situation.

2. How much time does the lien holder have to give the tenant to move out? 
If a building is purchased at a tax foreclosure sale or a trustee's foreclosure sale under a lien superior to the tenant's lease and the tenant timely pays rent and is not otherwise in default under the tenant's lease after foreclosure, the purchaser must give a residential tenant of the building at least 30 days' written notice to vacate if the purchaser chooses not to continue the lease. 

3.  What is considered “timely paid rent”?

The tenant is considered to timely pay the rent if:

  1. during the month of the foreclosure sale, the tenant pays the rent for that month to the landlord before receiving any notice that a foreclosure sale is scheduled during that month or
  2. pays the rent for that month to the foreclosing lienholder or the purchaser at foreclosure not later than the fifth day after the date of receipt of a written notice of the name and address of the purchaser that requests payment. 

Before a foreclosure sale, a foreclosing lienholder may give written notice to a tenant stating that a foreclosure notice has been given to the landlord or owner of the property and specifying the date of the foreclosure.

4.  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. 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.  Further, a tenant is protected by law if the tenant pays the rent to the old landlord prior to the notification of foreclosure.

5. Is court action necessary for a property to be foreclosed on? 
No court order is necessary for a bank or mortgage company to foreclose on a money purchase lien against the home.  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 sold. All mortgage foreclosure sales (but not tax sales) 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 to proceed.) 

6. How can a tenant obtain proof that a landlord has been foreclosed upon? 
If the tenant suspects that foreclosure has occurred, the tenant should send a letter to the current management company and ask whether a foreclosure sale has occurred. The letter should give the management company seven days from the date it received the letter to respond. We suggest to send the letter certified mail, return receipt requested. The tenant should keep a copy of the letter.

A tenant can also visit the county courthouse and review the listings of current foreclosures. Larger cities often have services such as a foreclosure hotline which can verify impending foreclosures up to three weeks in advance.

7. Who is responsible for the security deposit after a foreclosure and how does the tenant get it back? 
The former landlord is responsible for the refund of the security deposit to the tenant, although many landlords may attempt to retain it.  Typically the tenant receives written verification of the foreclosure from the former owner, the management company, or the lien holder.

As soon as this verification 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.

8. 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.

9. What happens if the landlord fails to return the deposit after receiving a written demand? 
The tenant can file a suit in Justice of the Peace Court (small claims) to recover the security deposit.  In addition, the tenant may also be able to file criminal charges for theft or fraud against the landlord.  Call the Travis County Attorney’s Office at 512-473-9415 to see if criminal action is an option.  However, the following guidelines should be considered before contacting the county attorney:

  • Is there evidence of the landlord’s intent to defraud or steal the deposit?  Is there proof that when the deposit was paid, the landlord never intended to return it?
  • Did the landlord’s actions indicate intentional deception resulting in injury to the tenant? Did the landlord misrepresent those actions?  Did the landlord know the actions were false? Ignorance is no defense.

Fraud usually consists of the concealment and nondisclosure of a material fact with the intent to benefit from the concealment.

10. When is a new lease agreement created? What choices does the tenant have in establishing one? 
After foreclosure occurs, the new owner is not obligated to honor any contract the former landlord had with the tenant. The same is true for the tenant.

The new owner may choose to honor the existing agreement the tenant had with the previous landlord.  Or the new owner 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 contract unless the agreement is satisfactory.  

A tenancy can also be established with the new landlord through a verbal agreement or, implicitly by payment and acceptance of rent.

11. 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 with the new landlord through the payment of rent or by a written agreement, then the tenant can leave, at any time, without giving any notice. 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 landlord, 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 has occurred ,  the tenant can choose to move without fear of being held liable under the lease with the prior landlord. Of course, the tenant can 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.

12. What claim does the new landlord have for damages to the property?

The new landlord has no claim to any damages, except for those 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 landlord should complete an inventory to document the current condition of the rental unit.  If the landlord 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.

13. How can a tenant obtain name and address of the new owner to request repairs or to negotiate a new contract? 
The new owner will send the occupants notice that the property has been sold and will give the tenants the name and address of the new owner.  In most cases the tenant can expect to receive written notice from the new owner within a few days to a few weeks after the foreclosure sale.

The tenant can also visit the county clerk’s office at the county courthouse and request assistance to search for the trustee’s deed, which is filed after a foreclosure sale.  The information may also be obtained by contacting the tax assessor-collector.

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 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.



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