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Is a lease contact void if the owner knew about the foreclosure prior to signing the lease?

I signed a contract with the owner of this property in October. Within a month we started receiving foreclosure notices on the property. The owner assured me he was working with the bank to stop the process even though the mortgage was over $10,000 dollars behind. One month later he told me that he was letting the house go. The bank then postponed the sheriff sale to later date after the lease would be over. Does this void the contract? What rights do I have. I'm now trying to renegotiate with the guy to lower the rent. Do I have a leg to stand on? Thanks for your help. Signed pissed off tenant

Anoka, MN -

Attorney Answers (3)

Jeremy Judson Cobb

Jeremy Judson Cobb

Bankruptcy Attorney - Minneapolis, MN
Answered

Although this is a touch beyond my expertise, as I see it, the lease is either void (or voidable) or it is not. It is not a hybrid in which the lessee becomes entitled to a rent reduction and modification of the lease agreement. By maintaining possession, and so long as no covenants, implied or otherwise, are breached, you are obligated to pay rent. If you wish to avoid the lease, that is a different story. But you can't have it both ways.

Michael James Wang

Michael James Wang

Real Estate Attorney - Saint Paul, MN
Answered

You don't really have a leg to stand on. Not that it wasn't an underhanded move by the landlord if he knew the house was going into foreclosure, he fully intended on letting the house go through foreclosure, and he withheld that information from you. Still, from a legal standpoint, you likely don't have recourse.

If you have a bona fide lease (and it sounds like you did), the purchasing party at the sheriff's sale has to honor that lease when it survives beyond the date of the expiration of the redemption period. The redemption period will last for either 5 weeks, 6 months, or 12 months following the sheriff's sale in Minnesota, depending on a variety of factors. In the vast majority of cases, the redemption period lasts for 6 months. But if your lease expired or will expire prior to the sheriff's sale (and thus, prior to the expiration of the redemption period), the landlord wasn't under any obligation to enter into a new lease agreement.

On a bit of a side note (and acknowledging that I know nothing about your landlord's financial situations and intentions), the mere fact that he was $10,000 behind on the mortgage does not mean he wasn't trying to stop the foreclosure process. Banks won't accept partial payments, so it can start to snowball if the bank starts being difficult in the modification process or in trying to find other workout options. And there are other methods to retain property that can be successful even with full opposition for the bank. Specifically, I'm thinking about chapter 11 or chapter 13 bankruptcy, which can be particularly helpful in situations where rental property is involved. But, bankruptcy won't make sense for everyone.

Where you MIGHT have a leg to stand on is potential fraud against the landlord. If he knew a foreclosure was imminent, knew that you had no idea one was coming, and specifically withheld that information from you to induce you into signing a lease agreement you otherwise never would have signed, you might be able to make a claim for fraud. I think it's unlikely to be successful for a variety of reasons that I don't really have time/space to get into on a forum like this. Even if it is successful, the damages would be minimal since the landlord wouldn't be required to renew the lease anyway. You might be able to get your moving costs out of him.

If you simply stop paying rent, your landlord could sue you for unpaid rent or start an eviction action. You may want to consider the likelihood of him actually suing you for that money, the chances he would be able to collect, and the chances that he would start an eviction action against you so he could attempt to rent it to someone else for a period of just a few months.

www.dreweslaw.com This response is not intended to create an attorney-client privilege and is based only on the... more
David Jay Sternberg

David Jay Sternberg

Divorce / Separation Lawyer - Mentor, OH
Answered

No the lease is not voidable. If the property is foreclosed on and sold at sheriff's sale, the owner will be in breach of the lease and you will have a good cause of action against the owner. Your lease is subject to the mortgage meaning that the mortgagee's rights are superior to yours since the mortgage was entered into prior to your lease and I assume recorded.

Attorney Sternberg is admitted to the practice of law only in the State of Ohio. His answering of this question... more

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