By Amy Hoak

Renters aren't immune to the heartache of foreclosure. When their landlords default on the mortgage, tenants could be squeezed out of a place to live. But often renters aren't aware of their rights in these situations.

"It is extremely confusing," said Maria Foscarinis, executive director of the National Law Center on Homelessness & Poverty. "In fact, the tenant might be going along and paying rent, and may be even paying the rent after the foreclosure is finalized...not having been notified that [the landlord] is no longer the owner of the property."

State and local laws regarding the foreclosure process and tenant eviction vary throughout the country, she said. To clear up some of the confusion tenants are facing, the center released a report on Wednesday, titled "Without Just Cause: A 50-State Review of the (Lack of) Rights of Tenants in Foreclosure."

Seventeen states require that tenants receive notice when they will be evicted due to foreclosure, according to the report. Twelve states require tenants be named as parties to foreclosure proceedings, in order to terminate tenancies or give the new owner immediate possession rights.

In New Jersey and the District of Columbia, a tenant's lease can outlive a foreclosure, and tenants can continue to rent from the new owner of the property when a foreclosure is finalized -- often the bank, Foscarinis said. In nine states, the lease may be protected if it predated the mortgage, according to the center.

"Tenants should not assume that they must leave because the owner is being foreclosed upon," Foscarinis said. "However, they should be aware that they might be required to leave and find out what the law is in their state."

Foscarinis said that information in the report was compiled after the center began hearing about increases in homelessness around the country, evident from the increased use of emergency shelters and food pantries. Renters weren't receiving much attention, even though they are often at a greater risk for homelessness due to foreclosure, she said.

"This report is a big, loud warning bell about what happens when renters are forced to leave their homes without warning because of a building foreclosure," said Sen. John Kerry, D-Mass., in a news release. "Renters who do no wrong shouldn't pay the price of being evicted without the necessary time to make alternative living arrangements."

According to the National Low Income Housing Coalition, more than 20% of U.S. properties facing foreclosure are rentals, and renters make up about 40% of all families facing eviction.

In a news release, Rep. Keith Ellison, D-Minn., called those renting foreclosed homes the "untold victims" of the housing crisis. The research, he said, "reinforces many of the stories I have heard from my constituents in Minnesota." He has joined House Financial Services Chairman Barney Frank, D-Mass., to introduce legislation on the issue, Ellison added.

"When the foreclosure crisis began, people weren't considering renters in the equation," said Keith Wardrip, senior research analyst for the National Low Income Housing Coalition. "We are starting to raise the awareness."

The Call For Uniform Rules

To make the rules clearer -- and more favorable to tenants -- the National Law Center on Homelessness & Poverty wants there to be national laws regarding renters' rights when the property they are living in goes into foreclosure.

"We are advocating for the federal government to take some action to create a uniform standard and require that the tenants be given a minimum of 90 days notice so that they have an opportunity to find housing," Foscarinis said. Kerry also said the law needs "to protect tenants by allowing them to stay in their homes for at least 90 days after a foreclosure."

On a separate but related front, Fannie Mae and Freddie Mac are implementing a National Real Estate Owned (REO) Rental Policy to allow renters living in foreclosed Fannie and Freddie-backed properties to stay in the home -- at least for a while.

Under the new policy, renters who are current on their rent would be offered a month-to-month lease at market rent, said Brad German, spokesman for Freddie Mac. This way, the home stays occupied, which is beneficial to the upkeep of the property. Plus, renters have a smoother transition into finding a new place to live.

"One of the stipulations is that we are going to try and sell it to reduce losses on the foreclosure," he said. If the property is sold, the lease would be terminated, he added.

But for some investors, buying a property that already has a tenant living there might actually be a selling point, German said. In that case, the tenant might stay in the property and simply have a change in landlord.

 
   If It Happens To You

First and foremost, renters who are living in a home that is being foreclosed on shouldn't assume that they have to leave immediately, Foscarinis said.

But right away, they should find out about state and local laws to determine their legal rights. They should also seek the advice of legal aid attorney or a housing counselor on what the next step should be, Wardrip said.

For some low-income Americans, getting counseling might be a challenge because many legal aid offices are overwhelmed these days, Foscarinis said. The center's report provides additional resources for each state for those struggling to find the help they need.

Renters also could call their local member of Congress, Foscarinis said. "Possibly they can help through their constituent services office, and this also lets them know that this is a problem that they need to address," she said.

-Amy Hoak, 415-439-6400; AskNewswires@dowjones.com