Our office routinely represents real estate investors and others who purchase residential properties at foreclosure sales. These sales are most commonly conducted by the Trustee for for a lien holder — typically the mortgage lender to an owner who has defaulted in making mortgage payments — but other times are conducted by Judgment creditors or taxing authorities.
With increasing frequency, the homes our clients purchase at the courthouse steps are occupied by the former homeowner who was foreclosed-upon. It is an unfortunate but necessary part of our practice to remove these former owners. In some cases, the former owners do not occupy the foreclosed property. Instead, they have leased the property to tenants, or simply allowed others to occupy the property with no formal arrangement.
Our philosophy on the practice of law — evictions and otherwise is simple: We never cut what we can untie. To that end, we always encourage our clients to attempt to entice the former owners or other occupants to voluntarily vacate. We have developed a “Cash for Keys” strategy and template agreement for that purpose, and many of our clients understand the wisdom of paying an occupant to voluntarily vacate quickly.
However, some occupants of foreclosed properties refuse to vacate — even when their removal is clearly inevitable.
As I have frequently blogged about in the past, most Deeds of Trust contain a “Tenant at Sufferance” clause that automatically converts foreclosed-upon former owner into “tenants at sufferance” following a foreclosure sale. These same clauses typically contain a provision requiring that the foreclosed-upon owner vacates the property upon written demand from the new owner (i.e. the purchaser of the property at a Trustee’s Sale).
The former owner’s legal status as a Tenant at Sufferance is important because it defines that owner’s rights related to Notice to Vacate Prior to Filing Suit. Usually, a former owner is entitled to 3 days Notice to Vacate before an eviction suit can be filed.
However, a non-owner/tenant’s rights to occupy a property that has been foreclosed may be very different, and for good reason. Usually the tenant is not culpable for the former owner’s default in paying their mortgage and/or may have not received any notice of the foreclosure.
Section 24.005 of the Texas Property Code mandates that occupants of property be furnished notice prior to the time that an eviction suit is filed with the courts.
Subsection (b) states the following, relative to residential tenants of properties purchased at foreclosure sales:
“If a building is purchased at a tax foreclosure sale or a trustee’s foreclosure sale under a lien superior to the tenant’s lease and the tenant timely pays rent and is not otherwise in default under the tenant’s lease after foreclosure, the purchaser must give a residential tenant of the building at least 30 days’ written notice to vacate if the purchaser chooses not to continue the lease. The tenant is considered to timely pay the rent under this subsection if, during the month of the foreclosure sale, the tenant pays the rent for that month to the landlord before receiving any notice that a foreclosure sale is scheduled during the month or pays the rent for that month to the foreclosing lienholder or the purchaser at foreclosure not later than the fifth day after the date of receipt of a written notice of the name and address of the purchaser that requests payment.”
We have been told by foreclosure purchasers that the statute is clear as mud.
In plain English, the new owner/purchaser’s analysis should be as follows:
- Is the occupant of the property following foreclosure a Tenant?
- If so, is there a verbal or written lease, and what are its rental payment terms? Note: proving the existence of a non-written/oral lease can be tough
- Did the tenant pay rent to the former owner during the month of the foreclosure sale? Note: the tenant should be required to furnish proof of payment
- When during the month was the rent paid?
- Is there evidence concerning IF/WHEN the tenant learned of the foreclosure sale?
- Was the rent paid BEFORE the Tenant learned of the foreclosure sale?
- Following the foreclosure sale, did the Tenant pay rent to the foreclosing lienholder?
A purchaser of residential property at a Trustee’s Sale usually has no way of knowing whether the occupants are former owners or tenants. For that reason, and in an abundance of caution, we typically issue 3 day notice to vacate, but include certain disclaimer language asking the occupants to contact us if they are Tenants.
It is important to realize that many justice courts consider delivery of the proper Notice to Vacate under Section 24.005 to be jurisdictional (Although the 5th Circuit seems to have disagreed) and may be inclined to DISMISS and eviction suit where there is not sufficient notice to the occupants. For this reason, special consideration should be given to the Notice issued in post-foreclosure eviction cases.
