Buying a Foreclosure Home With Tenants? Important Cautions

If you’re among the many would-be homebuyers looking for an affordable place among the vast stock of foreclosures, here’s an important tip: Factor into your research whether the foreclosure home in which you’re interested is owner or tenant occupied.

If the house is a rental, federal law gives the people living there certain rights, which may affect when you can actually move in. Specifically, the 2009 Protecting Tenants at Foreclosure Act (PFTA) says that:

  • month-to-month tenants must be given 90 days’ notice if a buyer at the foreclosure sale intends to terminate their tenancy, and that
  • tenants with leases can remain until the lease ends (but can be terminated with 90 days’ notice if an individual buyer intends to live in the property).

You’re looking at a minimum 90 days from the house purchase to its being empty and ready for you to start moving those boxes in the front door.

If you’re buying in California, there’s even more you should know: As explained by Nolo landlord/tenant expert Janet Portman, a March 2012 court decision from the Los Angeles Superior Court held that during the time that your newly acquired tenant lives in the house under the preforeclosure lease, the only way you’ll be allowed to deal with a failure to pay the rent is to use a 90-day termination notice — instead of the normal 3-day notice to pay rent or quit. The bizarre result of that is that the tenant would be able to live in your house for 90 days rent-free. For more on this issue, see “Termination for Rent Nonpayment after Foreclosure: 90 Days’ Notice?” and PNMAC Mortgage v. Stanko, Los Angeles County Superior Court Limited Jurisdiction, Case No. 11U04495, March 7, 2012.