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.

Landlord's Remedies When Tenants Abandon Leased Premises

As a real estate lawyer in San Antonio, I am frequently asked about a Landlord's options upon learning that a Tenant has moved-out without notice, or who simply abandoned the leased premises before a lease ends. The Texas Supreme Court has recognized four distict causes of action that a landlord may assert against a tenant who breaches a lease by abandoning the premises:

(1) maintain the lease and sue for rent as it becomes due;
(2) treat the breach as an anticipatory repudiation, repossess, and sue for the present value of future rentals reduced by the reasonable cash market value of the property for the remainder of the lease term;
(3)treat the breach as anticipatory, repossess, re-lease the property to a new tenant, and sue the original tenant for the difference between the contractual rent and the amount received from the new tenant; or
(4) declare the lease forfeited (if the lease so provides)and relieve the tenant of liability for future rent.

See Austin Hill Country Realty, Inc. v. Palisades Plaza, Inc., 948 S.W.2d 293, 300 (Tex. 1997).

However, it is important to remember that a landlord has a duty to mitigate its losses/damages when a tenant abandons the leased premises and stops paying rent. Id., at 295–300. This principle recognizes that a landlord who claims anticipatory breach has a duty to mitigate because the landlord’s claim is contractual in nature. Id. at 300.

Further, the Texas Legislature has codified the landlord’s duty to mitigate as section 91.006 of the Property Code. See TEX.PROP.CODE ANN.§ 91.006 (Vernon 2007). That same section prohibits, and makes "void," lease terms that attempt to exempt a landlord from a liability or duty to mitigate its losses. Id.