What Happens When Your Landlord Doesn't Pay the Mortgage to the House You Live In?

If you rent your residence and the landlord doesn't pay the mortgage, a practice known as rent skimming, the house will likely go into foreclosure. This raises some very important issues for you as a renter, including the status of your lease, your obligation to continue paying rent to the landlord, and your future as a tenant in that property.

The lease is a contract you entered into with the landlord, and isn’t affected by whether or not the landlord makes mortgage payments. Your landlord is still obligated to allow you to live in and enjoy the premises, and is also obligated to maintain the house in habitable condition. In addition, if the lease calls for the landlord to provide any utilities, such as water, electricity, gas or trash removal, those services must be provided; otherwise, the lease provides remedies, and most jurisdictions have government agencies that help resolve landlord-tenant disputes.

From a legal perspective, what the landlord does with the rent you pay is none of your concern. Rent skimming is not illegal except in California, where it’s illegal only during the landlord’s first year of ownership of a property. While it’s obviously frustrating to meet your obligation to someone who doesn't meet his obligation for the property you’re renting, that doesn't relieve you of the duty to pay the rent when due. If you withhold the rent, the landlord may initiate eviction proceedings against you, seriously damaging your credit rating.

Prior to the enactment of the Protecting Tenants at Foreclosure Act of 2009, tenants in properties that were foreclosed generally lost their leases and had to vacate the premises quickly. The act provides for leases to survive a foreclosure, and tenants without leases, called month-to-month tenants, must be given 90 days’ notice to move out. An exception is made when the new owner of a foreclosed property intends to live in it, in which case leases may be cancelled with 90 days’ notice. Your lease remains in force, and is a contract between you and the new owner. You should receive legal notice of the transfer of ownership and your rights and obligations, including payment of rent.

When properties are foreclosed, the lenders who usually assume ownership are not interested in spending more money than they have to, and will be reluctant to perform any but the most critical repairs. In addition, federal law notwithstanding, they may try to persuade tenants to move out, so they can show and sell a vacant property. If your landlord is out of the picture and you’re dealing with a lender who’s anxious to persuade you to move out, insist that its agents substantiate whatever they tell you in writing, and document all your dealings with them.