Purchasing property at a foreclosure sale can bring some unforeseen consequences. Sometimes the property is still occupied, either by the former owner, the former owner’s tenants, or someone who simply intends to stay there until forced to leave. The following are some considerations when placing a bid at a foreclosure sale.

 

The simplest post-foreclosure eviction situation is if the occupants of the property are former owners.  The law gives former owners 20 days to move.  No additional notice is required.  While the former owner may contest the foreclosure sale—which is not uncommon—in most cases there is little defense to the purchaser’s right to possession of the property.

 

For tenants occupying recently foreclosed property, the process is more complicated. The depending factors include whether there is a bona fide lease and if the property is within Seattle city limits.

 

The first step is to determine whether the tenant has a “bona fide” or genuine lease. A lease is bona fide if it is between unrelated persons and for fair rental value.  For example, if the former owner rents the premises for $20.00 a month to her cousin and then secretly lives in the basement, the lease is not bona fide.  In such a case, the court may invalidate the lease.

 

For a legitimate tenant on a month-to-month rental agreement, the landlord may give the tenant a notice to terminate the lease giving at least 60 days’ notice to vacate.  The last day must coincide with the end of the month.  Seattle’s “Just Cause Eviction Ordinance” may require additional notice or time to move. 

 

If there is a bona fide term lease, the new owner must honor that lease until the end of the term.  Prior to December 31, 2014, there was a federal law that created an exception if the property was purchased for the new owner to occupy as a primary residence.  That law expired.

 

There is a misconception that tenants need not pay rent for 60 days after a foreclosure sale.  There is no statute or case law that provides for free rent to occupants of foreclosed property for any period of time.

 

Some common post-foreclosure scenarios:

 

1. The occupant has no lease or has damaged the property.  The occupant has no right to remain on the premises and may be subject to eviction 20 days after the sale without the need for a pre-eviction notice.  If the occupant is damaging or committing illegal acts on the property the owner may deliver a 3-day notice requiring the occupant to vacate earlier. 
    

2. The tenant or the former owner alleges an ownership interest in the property.  A party with a legitimate ownership interest in the property may not be evicted using eviction laws.  Usually, the deed transferring title to the new owner is sufficient to defeat any such claim.  If not, the trustee or title insurance carrier (assuming the new owner purchased title insurance) may have to defend the new owner’s claim.  The new owner will seek an order from the court to “quiet title.”  This process will take substantially longer than an eviction.
    

3. The former owner or the tenant files for bankruptcy protection:  If the occupants file a bankruptcy petition, every lawsuit, eviction or other legal proceeding against the petitioner stops until the new owner gets permission from the bankruptcy court to continue.  Resolving this tenant situation usually requires the assistance of an attorney familiar with bankruptcy law.
    

4. The tenants have a bona fide, unexpired lease: The new owner must honor the terms of the lease.  The landlord and the tenant owe each other all the duties and obligations imposed by the Residential Landlord-Tenant Act of Washington until the lease expires. 

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At any time, a new owner or landlord may offer occupants an incentive to move.  A “cash-for-keys” agreement is legal as long as both parties agree.  Any agreement, however, should be in writing or it cannot be enforced if the tenant changes his or her mind after taking the money.

 

Legal costs for a post-foreclosure eviction range from as little as $150.00 to thousands if the occupants contest the eviction every step of the way.  An eviction may take as little as a few weeks to several months.  Most eviction cases take about a month.  During this time, the new owner may be required to continue mortgage payments on the property.  Often, seeking legal counsel as soon as possible after the foreclosure sale will save you time and money.  An attorney can assist you by analyzing the situation, informing you of your rights, and developing a plan to remove the occupants as quickly and affordably as possible.

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If you need assistance with a tenant dispute, an eviction, a lease or other landlord-tenant situation, please call 206.628.6600 today to speak with one of our experienced attorneys.

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Important: This information is provided as a courtesy without any claim as to its effectiveness or legality. Use of this information does not in any way create an attorney-client relationship.