Should I Stay or Should I Go? Evictions After Foreclosure

Time-to-GoPrior blog posts have discussed eviction actions after foreclosures in New York State.  Recently, due to the increased number of cases going to a final judgment of foreclosure and sale, and then being sold, there is an increased amount of tenants in foreclosed properties.  This post will discuss the legal status of these tenants and the possibility of eviction.

A fast summary of the legal foreclosure proceedings is in order at this point.  Once a Court issues a final judgment of foreclosure and sale, the property in question is then sold at public auction.  The highest bidder then pays the amount bid to the court-appointed Referee, and receives a Referee’s Deed, which is evidence of their ownership of the property.  The former owner’s interest is extinguished, together with the interest of any of the former owner’s judgment creditors.

Of course, the former owner may never vacate the premises.  Once their ownership interest is extinguished, they are subject to eviction by the new owner (the successful bidder at the foreclosure auction).  This may be the original lending institution, or an individual or corporate third party who purchases the property as an investment.  If the former owner is still occupying the premises, they are considered a holdover tenant.  Under the law, they must receive proper notice prior to an eviction proceeding being brought.  If they do not vacate within a particular period of time, the new owner can then commence a holdover eviction proceeding in the appropriate local court having jurisdiction over landlord-tenant matters.  For example, if the property was located in White Plains, then a holdover proceeding would be brought in White Plains City Court.

What if the tenant is simply a tenant, and not the former owner of the property?  For example, a tenant rents a house from its owner.  The owner falls on hard times, and loses the property in a foreclosure proceeding.  Is the tenant allowed to remain as a tenant?  Under the current New York Statute, a tenant who has a valid, fair market lease for the premises is entitled to remain until the end of their lease term.  For example, a tenant has a lease running through the end of 2017.  The property’s ownership is taken over by the lending institution in June, 2017, and the lending institution seeks to evict the tenant.  Assuming the tenant is paying fair market value for the property, they are entitled to remain until the end of their lease, December 31, 2017.  They may be required to pay their rent to the new owner, of course.  Regarding fair market rent, this means that a lease requiring the tenant to pay an unreasonably low amount will not be upheld by a Court.  If rentals in the immediate area are for $4,500.00 per month, a lease calling for rent of $2,000.00 per month will not be upheld.  The reason for this is to avoid a homeowner facing foreclosure from giving a “sweetheart lease” to their friends and family, allowing them to live at the premises for an unfairly low rent after foreclosure.  Another exception is if the lease is for a rent stabilized apartment.  In that case, all provisions of the lease would continue to apply, including its renewal provisions.

Many tenants who contact our firm in this situation do not have a written lease with the owner.  What is their status?  The statute says that they are entitled to a 90 day notice prior to eviction.  This means that a new owner must serve them with a notice stating that they are required to vacate the premises within 90 days of the service of the notice.  If they do not vacate within that period of time, they will be the subject of a holdover proceeding, again, in the local landlord-tenant court.

Assuming the eviction case goes to the local court, experienced counsel [link] can negotiate a settlement with the new owner and their attorneys, allowing the tenant to remain in the premises for an agreed-upon period of time, while paying use and occupancy to the owner.  Our firm has experience representing both landlords and tenants in post-foreclosure eviction proceedings, and looks forward to assisting all parties in these situations.