Tenants Enjoy Protections When Landlord/Homeowner Loses Property to Foreclosure

These days, foreclosures are commonplace. Our natinal economy is experiencing the hangover following years of a credit party reminiscient of a fraternity blow-out. A recent magazine article quoted the CEO of mega-homebuilder Toll Brothers spreading the blame:

“What cracked the market was not just our greed but the greed of our buyers.”

Irrespective of the cause, thousands of tenants have received a nasty and unexpected surprise -- news that the home they are occupying has been foreclosed. Even worse is that in most instances the new owner -- often the mortgage lender -- has plans for the property that don't include continuing the lease. Frequently, the tenant has been faithfully paying rent to the landlord, and wasn't even aware that the property was subject to foreclosure. Imagine the financial disaster that can accompany being suddenly and unexpectedly displaced from a comfortable rental home...

Fortunately, Texas law provides some relief for an unwitting tenant of a foreclosed property.

First, the notice period required before a landlord may file an eviction suit is extended from 72 hours to 30 days (provided the tenant was in compliance with the lease at or near the time of foreclosure). See Texas Proeprty Code Section 24.005.

Second, if the previous owner's interest in the premises is terminated by sale, assignment, death, appointment of a receiver, bankruptcy, or otherwise, the new owner (other than the foreclosing bank, itself) is liable for the return of security deposits. See Texas Property Code Section Sec. 92.105.

I have heard of instances where new owners of properties acquired through foreclosure or trustee's sale have actually offered to pay a pre-existing tenant to vacate the property promptly and peaceably. Such a payment can make sense for both the new and reluctant owner/landlord and the innocent tenant. The new owner obtains certainty and finality concerning possession of the property -- all without incurring attorneys' fees associated with an eviction proceeding. Meanwhile, the tenant receives a quick infusion of cash to help offset moving and related expenses.

If you are either the new owner of a tenant-occupied property, or a tenant in a rental property whose ownership has changed through foreclosure, you should consider consulting an experienced real estate attorney who can explain your rights and responsibilities.

LEASES FAQ

What is a lease or rental agreement?

When the landlord has decided to rent to the tenant and the tenant has chosen to rent from the landlord, they will enter into a lease or rental agreement. These are contracts, either written or oral, in which the landlord grants to the tenant exclusive possession of a premises in exchange for rent for a period of time.

Do all tenants have the same kind of lease?

No. Most tenants fall into one of two categories.

If the tenant rents for a fixed period of time (that is, a term) and no notice is required to terminate, the tenancy is called a tenancy for years. This tenancy is usually in writing. It must be in writing if the term of the lease is longer than one year.

If the tenancy continues indefinitely, automatically renewing from one period to the next, and if a notice is required to terminate, the tenancy is called periodic. This lease or agreement may be written or oral.

What are the advantages of an oral versus a written lease?

For tenants with an oral month-to-month agreement, the major advantage is the ability to terminate the lease and move out without further rental liability with only a short notice to the landlord. The notice usually must be the same as the term of the agreement, commonly 30 days. Tenants are very mobile (20 percent move each year) and the ease of moving can be an important consideration.

For landlords, an oral lease provides an easy way to terminate the lease and make the tenant move out with only a short notice, or to raise the rent. The landlord is usually not required to state a good reason for the termination, as must be done in other cases.

What are the disadvantages of an oral lease?

Because nothing is written down, the major disadvantage is the possibility of misunderstandings between the landlord and the tenant about the conditions of the tenancy.

What are the advantages of a written lease?

From the landlord’s standpoint, the chief advantage of a written lease is the landlord's right to hold the tenant to pay rent for the entire duration or term of the lease.

What are the disadvantages of a written lease?

The major disadvantage for the tenant is that the landlord may write in express provisions that void certain protections that the law ordinarily gives to the tenant. Also, most written leases—including most of the standard form leases—favor landlords, and the landlord's responsibilities are not very well spelled out.

Does the law regulate the provisions in a lease?

Yes. Both courts and legislative bodies have restricted the provisions in a lease. However, these laws vary by state and locality.

In one example of a law restricting a lease, state courts have struck down lease clauses which provide that the tenant accepts the apartment in "as is" condition and that the tenant must pay the rent regardless of whether the landlord maintains the property. So, if a landlord sues to evict for nonpayment of rent, tenants can defend themselves by arguing that the premises were not worth the full contract rent because of the deteriorated condition. This legal concept is called the implied warranty of habitability. It prevents the landlord from evading the responsibility to maintain the premises even if the tenant signed a lease waiving the right to maintenance.

Many states and municipalities have enacted laws that prohibit some clauses from residential leases. An example of a commonly prohibited clause is "confession of judgment." Such a clause would permit the landlord's attorney to go into any court and to represent the tenant without any prior notice, service or process. The tenant would waive a jury trial, confess judgment to whatever the landlord sues for without any defense, waive all errors or omissions made by the landlord in making the complaint, and authorize an immediate eviction or wage deduction.

Trey Wilson is a lawyer in San Antonio, who frequently represents landlords and tenants in lease negotiations, possession disputes and evictions. He was recently voted by his peers as one of San Antonio's best real estate litigation attorneys. He may be reached at 210/223-4100 or www.sa-law.com

Eviction Appeals and Pauper's Affidavits -- What to Do When a Tenant Appeals an Eviction and Doesn't Pay Rent

Many residential tenants are smarter than they are given credit for. They often default on Lease Agreements by not paying rent to the landlord. Eventually, the landlord gets fed-up, and files an eviction proceeding with the Justice of the Peace either personally, or through an attorney. The tenant often attends the eviction hearing and offers everything but to pay the rent. Inevitably, a Forcible Entry and Detainer or Eviction Judgment is entered by the Justice Court. But this often isn't the end of the road. It seems like more and more evicted tenants are filing appeals to the County Court at law. After all, it's pretty easy, and in many instances FREE. That is, wise tenants are availing themselves of the procedure whereby the can file an appeal , and stay the award of possession of the premises to the landlord, by filing an "Affidavit of Inability to Pay Costs for Appeal," more commonly known as a "Pauper's Affidavit." Once this Affidavit is filed, the costs for filing the appeal are waived, and the tenant has effectively managed to negate the Judgment of Eviction that the Landlord had to jump through hoops to secure.....or has he?

Texas Rule of Civil Procedure 749b(1) requires that tenants who appeal a Judgment of Eviction based upon Non-Payment of rent to pay into the Registry of the Justice Court one rental period’s rent under the terms of the rental agreement. This usually requires that one month's rent be paid shortly after the appeal is filed. At the latest, this rental payment must be made to the Court Registry within 5 days after filing the Pauper's Affidavit. Failure to timely pay this "good faith" rental payment can result in the Court granting possession of the premises to the landlord immediately -- even if the appeal is still pending.

If you are a landlord who is the victim of a frivolous appeal by a tenant who simply wishes to extend his "free rent" arrangement (which you never agreed to in the first place), you should contact experienced legal counsel to handle the appeal. An attorney familiar with Evictions and Landlord - tenant law could very well be the difference between you collecting rent or getting stiffed for a long period of time while the appeal works its way through County Court. For more information about appeals, check out the Evictions section of my website. You'll be glad you did!