Law Office Of

Joseph A. Velez

480.710.5079

Real Estate & Business Law Attorney

Phoenix, AZ Foreclosure- A Tenant’s Dilemma

When a tenant’s rental property is facing foreclosure a difficult situation arises for the tenant with many legal, financial and personal issues at stake. It is necessary for a tenant to understand what their rights, remedies and responsibilities are once they learn their landlord may lose the home to a foreclosure.


When the landlord fails to make his monthly mortgage payments, the foreclosure process begins. Typically a foreclosure notice is sent to the property alerting the occupants of the date and time of the pending sale. Most tenants naturally become quite concerned about losing their rental along with their deposit.


The first mistake a tenant can make is to not pay their rent in light of the pending foreclosure. Many tenants do not understand that the landlord has until the sale date to pay all past due amounts and reinstate the past due mortgage. If the landlord reinstates the mortgage, then the lease remains in force. If the tenant has moved and refused to pay rent, they are in breach of their lease and may be subject to being sued or evicted.


There is a flip side to this. There is minimal protection to the tenant under the law If the tenant continues to pay rent and the landlord does not reinstate. Arizona law holds that once the property is sold at the foreclosure/trustee sale, no one other than the new owner or bank has any legal interest in the property. Should this occur, the lease is null and void, and the new owner will issue the tenant a five (5)-day notice to vacate. There will be no credit given for any security deposits to the previous landlord. It then becomes the tenant’s responsibility to collect his deposit from the previous landlord.


Tenants in foreclosing properties are in a real catch 22. Do they pay their rent, hope the landlord brings everything current, and if not, be prepared to move? Or do they not pay rent, find another home and run the risk of being sued for breach of contract if the landlord does reinstate prior to the sale?  Every situation is different. It is important to talk to an attorney to ensure your actions are legally sound.


Hot off the Press: As this newsletter went out to print, Congress passed a tenant protection law that allows some tenants of foreclosed homes to stay in the home for several months after the foreclosure.  Call me if you have questions about this (or wait until the next newsletter).

The Law Office of Joseph Velez

Commercial Real Estate & Business Law Attorney

Scottsdale Financial Center

7272 E. Indian School Rd., Suite 111

Scottsdale, Arizona 85251

480.710.5079

Our law office represents clients throughout the Phoenix, Arizona area including the cities of Scottsdale, Maricopa, Mesa, Surprise, Paradise Valley, Avondale, Gilbert, Chandler, Glendale, Florence, New River, Fountain Hills, Peoria, Surprise, Queen Creek, Tempe, Sun City, Apache Junction, and Casa Grande. We serve the counties of Maricopa, Yavapai, Gila, Pinal, La Paz, Yuma, and Pima County.

DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.

One hour initial office consultation fee is $295 for the matters discussed above.