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Lessees’ Rights on Foreclosure and on Sale

When real property is sold during the term of a lease, the rights and responsibility of the lease apply to the tenant and new owner; however, a foreclosure judgment will terminate the lease, particularly if the lessee is named as a defendant in the foreclosure action.
 
Lessee's Rights on Sale
 
A normal sale of property subject to a lease agreement does not terminate a month-to-month rental agreement or a long-term written lease. The new owner is bound by the original lease and may not evict the lessee. Moreover, the new owner cannot raise the rent in the middle of an existing lease.
 
When a sale occurs, the prior landlord or the new owner should provide the lessee with notification of the new owner's name and address, either by certified mail, or by a revised posting on the premises. The new owner is responsible for obtaining all security deposits from the previous landlord and for returning the security deposit to the lessee at the end of the tenancy. Lessees should be promptly notified where the deposits are being held.
 
Lessee's Rights on Foreclosure
 
Right to continued possession
 
On foreclosure, long term tenants who have continued to pay rent and who entered into the lease prior to the mortgage may have a right of continued possession in the rented premises, especially in areas where rental housing is scarce. These tenants must treat the foreclosure purchaser as the original landlord and pay all future rents to the purchaser.
 
More frequently, however, the mortgage has priority over the lease and, in the event of foreclosure, the tenant will be named as a defendant in order to terminate the lease. If the tenant is named as a defendant in a foreclosure action against the landlord, the tenant should continue to pay rent and should appear and respond to the action through counsel. In addition, the tenant (through counsel) should contact the mortgagee to negotiate a new lease agreement.
 
On foreclosure, all tenants are entitled to a reasonable period of time to vacate. Moreover, tenants must be named as defendants in the foreclosure action in order for any eviction action to be legal.
 
Notice requirements
 
Tenants of property being foreclosed upon must be served with the proper statutory notices and must be given time to respond. Even though the exact timeframe for notice varies, a purchaser generally must provide long-term tenants with at least 60 days' written "Notice to Quit", if the purchaser does not wish to continue leasing to the tenant.
 
A "month-to-month" (periodic) tenant can be legally evicted only after 30 days’ written notice. In case of a week-to-week rental, the tenant needs to be given seven days' advance notice.
 
Right of redemption
 
A long-term tenant has a right to redeem the mortgaged property of his lessor during foreclosure sale. If the tenant redeems the property, the foreclosure will be stopped, and the tenant's lease will not be terminated.
 
Refund of Security Deposit
 
On foreclosure, a lessee is entitled to the refund of his security deposit from the previous lessor, unless the new owner delivers to the tenant a signed statement acknowledging that he has received and is responsible for the tenant's deposit.