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Landlord's mortgage default will affect renter's Texas tenancy

Posted: 11 October 2007 by John Huval
Leasing & Investment

The Compass Point Weblog

Renters across the US are getting evicted by new landlords — lenders that foreclosed on investment properties. An eviction notice may be the only warning the renter has of the landlord’s problems, and many are surprised to learn afterwards that their lease rights did not survive the foreclosure. Whether the tenant’s account is in good standing may not matter as banks act quickly to secure the property and prepare it for resale.

In most states, leases are voided when properties are foreclosed upon; and banks take steps to get the occupants out as quickly as possible. However, a handful of states have laws on the books that safeguard tenants from eviction in such scenarios; while others are pushing legislation that would give renters more notice than the usual three to 30 days.

Kelly Evans — Wall Street Journal, October 2007

The Texas Property Code directly addresses eviction notices required after a foreclosure. Since most Texas residential leases are subordinate to 1st lien mortgages, the tenancy is terminated upon foreclosure unless the purchaser chooses to accept the lease. The renter — now the tenant by sufferance — has a limited legal interest in the property. The purchaser — the new landlord — must provide either a 3 or 30 day notice according to the Texas Property Code before removing the renter.

TEXAS PROPERTY CODE § 24.005. NOTICE TO VACATE PRIOR TO FILING EVICTION SUIT.

(b) If the occupant is a tenant at will or by sufferance, the
landlord must give the tenant at least three days’ written notice to
vacate before the landlord files a forcible detainer suit unless
the parties have contracted for a shorter or longer notice period in
a written lease or agreement.

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. The tenant is considered to timely pay the rent under this subsection if, 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 the month or 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.

The Texas Association of Realtors Residential Lease (Form TAR-2001) does not require the landlord to inform tenants of a pending foreclosure sale. Additionally, the lease document notifies the tenants that their lease interest is subordinate and inferior to any lien or encumbrance placed on the property by the landlord. If the property is financed by a 1st lien mortgage, a foreclosure will terminate the tenant’s lease interest.

As a tenant, if you receive a notice, contact the new owner to quickly determine if they’ll accept a new lease. If you continue with timely rent payments, you’ll receive a 30 day notice giving you additional time to locate a new home and move. After that, the new landlord can proceed with an eviction — a process that culminates with the Sheriff escorting the tenant out of the property and removal of their personal belongings.

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