Q: My husband and I are renters. Yesterday we received a notice from Citibank stating the home is in foreclosure, and it hasn’t received payment of the rent we gave the owner for a year. Now it will be 90 days before the bank starts selling the house.
The owner of the property stated she is trying to acquire a loan modification and that the loan department does not communicate with the foreclosure department. And she is trying to complete a short sale with an agent. (We cannot acquire the property ourselves.)
Is it truly possible these two departments do not speak to each other? We are withholding rent payments until we can figure out our best next steps. –Kathy M.
A: Kathy, so sorry you’ve been caught in this unfortunate (and unfortunately common) situation. I know that it can be mortifying to hear that your landlord has been taking your rent and not paying the mortgage, and it can create great anxiety and uncertainty to know that your housing may not be secure or predictable. This is part of the purpose that is served by the lender notifying the residents of the home of the pending foreclosure, not just the owners. Here are some essential need-to-knows:
1. Your landlord is probably telling the truth. It is absolutely possible, even probable, that your landlord is being honest with you. Mortgage lenders and servicers are still notoriously inefficient and slow at processing loan modifications, and many times there is little or no communication between those who manage the foreclosure process and those who are working on loan modifications.
In fact, this is part of the dysfunction that has allowed the foreclosure crisis to spiral so out of control for so long: Many borrowers who feel that they are negotiating and working to get a loan modification in good faith feel blindsided when another division within the same lender or servicer drops the ball.
That said, even if the two teams within the bank were communicating with each other, that would not necessarily prevent the foreclosure unit from proceeding to protect the bank’s interest in the house and move the property toward repossession. Despite your landlord’s best efforts, she might not be successful at obtaining a loan modification. The bank’s interests lie in ensuring it can take the house back, in the event the loan mod conversation falls apart.
2. You have no legal grounds for withholding your rent. Here’s the deal: You have a lease or rental contract with your landlord, whereby you pay rent for the right to live there. You’ve been paying rent, and you’ve been living there. Your landlord’s contract with you does not include any obligation to pay her mortgage — the only obligation she has in that regard is to her lender, not to you.
Many tenants in your situation withhold rent and are allowed by their landlord to stay on in the place anyway, or negotiate a reduced rent with their landlord in consideration of the circumstances, but you should be aware that you do expose yourself to being evicted for nonpayment of rent if you continue to withhold your rent.
On the other hand, if you pay your rent and continue to express your willingness to pay it to the lender after the home is foreclosed, if that’s what happens, you could very well find yourself with a home to stay in for months or years to come.
In fact, federal law requires that lenders give tenants at least 90 days after they foreclose to get out of the home (unless an owner-occupant actually buys the place in that period of time, which is unlikely); many lenders will even pay tenants to leave the place in good condition, or will allow them to stay on even longer.
So, if your landlord’s lender just issued a 90-day preforeclosure notice, you can add that onto your 90-day minimum eviction notice post-foreclosure to see that you can expect a minimum of six months’ secure housing in that property from now, so long as you continue paying the rent. If you continue withholding it, your landlord has the right to evict you on three days’ notice.
3. You have other options. Consider contacting your local tenants’ legal aid organization to get a full, customized briefing on your rights and obligations. But also consider this: If you’re truly disgusted with the situation, you’re free to just move.
If I were you, I’d definitely figure out a way to get and stay current on my rent. Even after the foreclosure, if the bank takes a while to contact you, ensure that you keep your rent in the bank because the time will likely come when the bank calls to collect it.
But in the meantime, you might be able to feather your own savings nest by simply expressing your upset to your landlord and asking her to deeply discount your rent if you stay put. Also, staying put positions you to eventually trade the bank "cash for keys," as it’s called, which can be as low as a few hundred bucks or as high, in my experience, as several thousand.
If you keep calm and carrying on, smartly and strategically, you could end up turning this lemon into some monetary lemonade.