Foreclosure rights lost in fine print

Rent it Right

Q: The question you recently answered about a long-term tenant surviving the foreclosure of his home (because his lease predated the mortgage) was welcome reading to us, because that is our situation, too. Our landlord hasn’t been foreclosed on yet, but it’s imminent. Still feeling nervous, I reread our lease, and found this odd clause, called "Subordination." It says that we agree to be "subordinate" to the interests of any future mortgagor or lender. Should I be worried about this? –Michael M.

A: Yes, you should be worried. Your lease was drafted by a lawyer who was well aware of the common-law rule that protects tenants whose leases were signed before the date the mortgage (or other loan secured by the property) was recorded. That lawyer knew that if, after signing your lease, the owner decided to refinance or use the property as collateral for a loan, the lender would want the right to get rid of any existing tenant if it had to foreclose. Again, under the default rule, the lender would have been stuck with you because the lease predated the loan or mortgage.