When a landlord is in default on his mortgage, the tenants are often faced with a number of questions. They may be uncertain about who is the rightful recipient of the rent money and whether eviction is imminent. Tenants may also not know who to contact for maintenance or other issues on the property and who is ultimately responsible for upkeep in the building. Tenants should be aware of their rights and responsibilities in the event that the landlord defaults on the mortgage and the property is foreclosed upon by the bank.
Rent payments. The first issue that tenants might encounter is whom to send the rent money to once they are aware that the landlord has not satisfied his payment obligations. When a building is operated as a rental property, most lending institutions include a special agreement that addresses procedures for rental payment in the event of default. This agreement, known as a 1-4 Family Rider, is applicable to properties with one to four rental units in nearly all states. This rider authorizes the lender to receive rental payments when the borrower has defaulted on the mortgage. The lender has a significant interest in receiving the income generated by the property when the borrower has ceased to make mortgage payments to the lender. Lenders must provide written notice to the tenants about the default and the requirement to pay rent directly to the mortgagor, which is usually published on the property grounds.
Maintenance. The maintenance and repair obligations of the property owner remain intact despite the default and the stream of rental payments being directed to the lender. The owner must perform all obligations associated with property maintenance if and until the bank forecloses on the property. This often becomes a challenging situation for tenants as owners typically resist making repairs or even maintaining the property when their rental income is being diverted to the lender. Nonetheless, in the majority of states, the landlord is still required to maintain safe and habitable living conditions for his tenants. The Rider directing rental income to the lender does not require the lender to assume any maintenance duties with respect to the property.
The experienced team of attorneys at the Law Offices of Mark Weinstein, P.C. can help you litigate your real estate claims. Contact Mark Weinstein and his colleagues at (770) 888-7707 or visit them at http://www.markweinsteinlaw.com to find out how they can advise you.