Warning to landlords in foreclosure: renters have new housing rights

You've probably heard a story like Christina Smith's before. She had been in her new rental home for just two weeks when a foreclosure packet arrived from the clerk's office.

The home she had just leased for a year was to be auctioned at the courthouse in less than a month. Smith, a single mother of three, scrambled to find another house to rent in the same school district.

"I was terrified I'd come home and find the house locked and all of our belongings gone," she said. "I left as fast as I could."

Smith had just spent $2,400 to move and said she had to borrow $1,800 for her 72-year-old grandma to move again.

But here's the part of the story too many people haven't heard yet: It didn't have to happen that way.

Historically, renters haven't had many rights if their landlord stopped paying the mortgage. A lender took back the home and the renter was forced to vacate.

But with so many renters getting tossed out, Congress changed the rules in May. The Protecting Tenants at Foreclosure Act says renters must be given at least 90 days to leave. In some cases, renters can stay even until their lease expires.

But, like Smith, so many renters have never heard of the new law and have no idea how to protect themselves from this type of situation in the first place.

As the economy struggles, Florida's foreclosure rate continues to tick up. Investors who bought rental homes during the housing boom and can't afford to keep them are walking away.

Nationwide, about 40 percent of families facing eviction are renting from landlords with homes in foreclosure, according to the National Low Income Housing Coalition.

Some landlords are doing the right thing and notifying tenants as soon as they fall behind on payments. Others, though, are using the sluggish foreclosure process - which can drag on for a year or more - to pocket rent money.

Renters may not find out until they're served foreclosure papers themselves. Florida's law requires renters be named in foreclosure lawsuits so that they'll be informed.

So what can renters do?

First, don't sign any lease before checking your county's court records to verify that the home isn't already in foreclosure. Keep in mind, however, that suits are not typically filed until owners are at least three months behind on payments.

If you receive foreclosure papers on a home you're renting, don't assume you have to leave right away.

Keep paying your rent until you find a new home. If you stop paying, you'll likely get evicted, and that would hurt your credit.

If the bank takes back the home, you have a right to stay until your lease expires - unless the home is sold to someone who intends to live there. In that case, the 90-day rule would apply.

An investor who buys the home is required to honor a lease unless they sell to someone who wants the home as a primary residence. Again, the renter would have 90 days to relocate.

As for Smith, she says she's learned a big lesson in due diligence.

Neighbors have told her that the landlord who knowingly rented her the home in foreclosure had done the same thing on the same home to two other renters.

"It's a really dirty thing to do to someone," she said. "I just hope no one else moves in and pays him money before the bank takes that home."