Interplay Between State Foreclosure and Eviction Proceedings:

Although the interplay between foreclosure and eviction proceedings varies widely among the states, they generally fall into one of three frameworks. First, several states have an integrated process providing tenants with rights and addressing those rights in the foreclosure proceedings themselves. These states typically require that tenants be given some form of notice prior to the foreclosure proceedings or actually be joined as parties to the proceedings themselves. In the latter case, since they are named in the suit they should be informed of it and its progress as it proceeds. The second framework is one in which the foreclosure and eviction schemes are completely independent of one another. In these states it is unclear at times what the status of the tenancy is following a foreclosure. States using these types of proceedings are among the least tenant-friendly. The third variety is a hybrid of the prior two frameworks. In these states, foreclosure proceedings may address whether tenancy survives the foreclosure (although not necessarily providing tenants with rights in the proceeding), but are less clear regarding the rights of possession after a foreclosure.

Trends and Themes

The state-by-state report details the significant differences in each state’s laws regarding foreclosure and eviction procedures. However, some summary findings and common trends can be identified:

• Requirements for Notice to Tenants: Seventeen (17) states require that tenants living in rental properties subject to foreclosure be provided with notice of the proceeding or the default by the owner.
• Tenants as Parties to Foreclosure Proceedings: Twelve (12) states explicitly require that tenants be named as parties to foreclosure proceedings in order for foreclosure to automatically terminate tenancies or otherwise provide the new owner with immediate possessory rights in the property.
• Judicial v. Non-Judicial Proceedings: Thirty-six (36) states permit both judicial and non-judicial foreclosure proceedings.   The remaining 14 states and the District of Columbia permit foreclosure only through a judicial process.  Judicial foreclosures typically involve the initiation of a formal legal case that can turn into a lengthy proceeding. Non-judicial foreclosures are typically used in situations where mortgages contain a “power of sale” clause allowing a lender to institute a foreclosure (without judicial intervention) following a default. These clauses generally provide that upon a non-payment or other default of the mortgage, the mortgagee may dispose of the property in a more expedited manner after providing the mortgagor with appropriate notice of default and an opportunity to cure. This often occurs after the Sheriff’s office is involved and requested to evict the renter. In states that permit both types of proceedings, as a matter of practice it appears to be more common for non-judicial proceedings to be used, as lenders will typically include power of sale clauses in their formal mortgage agreements. Therefore, attention should be paid to the particular terms and conditions in the mortgage agreement that may impact the procedures governing the foreclosure. Moreover, individuals should consult with practitioners regarding local practices. According to local legal aid organizations, despite the fact that both judicial and non-judicial proceedings are permitted, one or the other may be the dominant proceeding of choice in a particular state.
• Termination of Tenancy: In a majority of the states, a renter’s tenancy would be automatically terminated following a foreclosure on the property. However, the circumstances that allow tenancy to be terminated vary greatly from state to state. For example, as discussed above, several states indicate that the tenancy is terminated if the tenant was made a party or provided notice to the foreclosure proceeding. Other states have no such requirement or declare that the tenancy will be modified (e.g. to become a tenancy-at-will). Therefore, the details set forth in the report should be considered in determining whether tenancy terminates in any particular state. Moreover, according to local practitioners, regardless of the statutory procedures it is often argued by advocates of renters that due process is violated if a tenant is not served with proper notice or made a party to a foreclosure proceeding and therefore the lender should take the property subject to the leasehold interest of the tenant.
• Tenancy Survives Foreclosure: In certain states such as New Jersey and the District of Columbia the tenancy survives the foreclosure and is not a valid reason for eviction.