News & Information: Patty the Property Manager

Dear Patty - Tenants and Foreclosure Papers

Wednesday, February 1, 2012  
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Dear Patty,

What do I do when a tenant calls to report that they’ve been served with foreclosure papers?

--Concerned Property Manager

Dear Concerned,

This is a very good question, and one that is quite timely. After a bit of a break, lenders have resumed their foreclosure filings — a recent Orlando Sentinel story detailed how at least one local judge will process more than 300 foreclosure cases at a very brisk pace. Combined, these two factors could very well increase the likelihood that you’ll receive more calls like the one you’ve inquired about.

First bit of advice here: Remember who your client is. Take into consideration Article I of the REALTOR® Code of Ethics, including the duty of honesty, and add whether there has been full disclosure to the tenant that the broker represents the landlord. If your business is similar to most in the local property management field, you work for your owners (your clients) and with your tenants (your customers). You must remember this at all times and govern yourself accordingly, because it’s your owner/clients to whom you owe your loyalty. While you can surely understand your tenants’ frustration, annoyance, or fears, you can’t let your emotions affect how you handle things here.

One of the first things a tenant in this scenario will do is look to link their requirement to pay rent and the owner’s requirement to pay their mortgage. Stress that they have an obligation to pay rent under their lease and that nothing in the lease places any mortgage-paying requirement upon your owner. Also, confirm that the landlord is paying all association dues and is maintaining the premises as the lease requires and therefore has not defaulted on the lease.

However… Your next task is to preserve your owner/client’s cash flow by ensuring your tenant doesn’t bail on you! The best way to do this is by setting their minds at ease. Familiarize yourself with your area’s court system and how long a completed foreclosure process is taking there. Having relationships with local real estate attorneys is advisable to protect both your interests and those of your clients. Often the process takes more than a year, and annoying letters from the courts every now and then will be the only effects your tenants will absorb from it. Prepare them for letters, and assure them that the foreclosure places no additional costs or obligations on them beyond paying their rent as they’ve agreed to do.

Next, get yourself up to speed on the "Protecting Tenants at Foreclosure Act of 2009.” As the law reads, tenants in bona fide leases (ones signed prior to the foreclosure’s filing) may finish out their lease terms unless a new buyer plans to live in the property. Even then, a tenant is given 90-days notice in which to vacate. The key point is to verify that your tenants’ lease was executed prior to the foreclosure’s filing so you’ll know they’re offered this act’s protections.\

A sound due-diligence process is to have the owner represent in writing that they are current on any required mortgage and association payment and if they become delinquent, they have a duty to disclose that fact to the broker. Another prudent step before accepting the rental listing is to check for any existing foreclosure actions regarding both the specific property and the owner. When these processes are followed, you will have a better chance at protecting yourselves and the tenants and you’ll stand a much greater chance of keeping tenants occupying the premises and paying their rent. And when they call to report that they’ve been served with foreclosure papers, you will be better equipped to handle the conversation.

Good luck,


"Patty the Property Manager” appears courtesy of the ORRA Property Management Subcommittee. Readers are invited to submit property management related questions to Patty by sending an e-mail to

The ORRA Property Management Subcommittee provides this property-management advice column as a service to ORRA members. The column is intended to provide a general understanding, not as a substitute for individual legal consultation. The column should not be relied upon in specific situations without consulting a real estate attorney.

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