Tenant Options When Landlord Is In Foreclosure Or Bankruptcy

The foreclosure process in Louisiana, from a tenant's perspective, involves several stages and can significantly impact tenancy depending on the circumstances of the foreclosure and the specifics of the tenant's lease.

For more information about the executory foreclosure process in Louisiana, visit Executory Process Foreclosure. 

Here's an overview of what you might experience as a tenant during the foreclosure process in Louisiana:

1. Pre-Foreclosure Notice

• Louisiana law requires that a pre-foreclosure notice be sent to the borrower (your landlord) before the foreclosure process can officially begin. As a tenant, you may or may not be directly informed about this notice, depending on your lease agreement and the landlord's communication with you.

2. Foreclosure Suit and Sale

• Louisiana conducts judicial foreclosures, meaning the lender must file a lawsuit in court to foreclose on the property. This process starts with the filing of a petition, and the property is sold at auction if the foreclosure goes through. The timeline for this process can vary, often taking several months.

• Tenants might receive official notice of the foreclosure suit and the scheduled auction date. This notice could come directly from the court, the lender, or through the landlord.

3. Auction and Change of Ownership

• If the property is sold at auction, the new owner might decide to use the property differently and could choose not to continue renting it out. Alternatively, the new owner might wish to retain tenants. This stage is critical for tenants because it directly affects whether they can remain in the property.

4. Post-Foreclosure Eviction Process

• If the new owner decides not to continue renting to the tenants, they must go through the legal eviction process. This involves providing the required notice, filing an eviction lawsuit if necessary, and obtaining a court order to evict the tenant if they do not leave voluntarily. For more information, visit Evictions. 

The Protecting Tenants at Foreclosure Act ("PTFA") provides certain rights to tenants in foreclosed properties. Under this act:

• Tenants with a bona fide lease that was entered into before the notice of foreclosure can usually stay until the end of their lease term. However, if the new owner intends to occupy the property as a primary residence, they may terminate the lease with 90 days' notice.
• Month-to-month tenants are entitled to a 90-day notice before being required to move out.

In Louisiana, there are several ways you might learn that the property you live in is being foreclosed upon. Being aware of these signs can help you prepare and understand your rights and options as a tenant. Here are key indicators and steps to take:

1. Communication with the Landlord

• Ideally, your landlord should inform you if they are facing foreclosure. However, this does not always happen, as landlords may be hesitant to share financial difficulties or may hope to resolve the situation before it affects tenants.

2. Legal Notices

• Notice of Default (NOD): If the property enters into the foreclosure process, the lender may send a Notice of Default to the property as part of the legal proceedings, which is the lender's first public step towards foreclosure. This notice might be posted on the property or sent through the mail.
• Foreclosure Lawsuit Filings: The lender must file a lawsuit to foreclose on the property since Louisiana uses a judicial foreclosure process. Tenants might see legal notices posted on the property or receive notifications intended for the landlord.
• Sheriff’s Sale or Auction Notices: The property will be scheduled for sale, usually through a sheriff's auction, as part of the foreclosure process. Notices of this sale are often posted on the property or published in local newspapers.
• For more information about the executory foreclosure process in Louisiana, visit Executory Process Foreclosure. 

3. Public Records

• Once a foreclosure lawsuit is filed, it becomes a matter of public record. You can search court records online for many jurisdictions or visit the local courthouse to inquire about any foreclosure actions filed against the property owner.

A landlord filing for bankruptcy does not automatically mean that tenants must move out. The outcome for tenants largely depends on the specifics of the bankruptcy case and whether the property is involved in the bankruptcy proceedings. Here's a general overview of what might happen:

1. Chapter 7 Bankruptcy: If your landlord files for Chapter 7 bankruptcy, the property may be sold by the bankruptcy trustee to pay off the landlord's debts. If the property is sold, the new owner may decide to continue renting it out or could choose to use it for other purposes. Under federal law, specifically the Protecting Tenants at Foreclosure Act, tenants with a lease have the right to remain in the property until the end of their lease term in most cases. Month-to-month tenants are usually entitled to a 90-day notice before having to move out.

2. Chapter 13 Bankruptcy: If your landlord files for Chapter 13 bankruptcy, they are trying to keep their property and pay off debts according to a repayment plan. In this scenario, it's less likely that you would have to move out, as your landlord is working to retain the property. Your lease should remain in effect, and you should continue to pay rent as usual.

If your landlord declares bankruptcy, the fate of your security deposit can vary based on several factors, including the type of bankruptcy filed and how the landlord has handled your deposit. 

If your security deposit is at risk due to your landlord's bankruptcy, you might need to file a claim as a creditor in the bankruptcy case. This does not guarantee you'll get your deposit back, but it puts you in line potentially to recover some or all of it.

Keep thorough records of your security deposit payment and any communication with your landlord regarding the deposit. This documentation will be valuable if you need to file a claim.

For more information, see How To Get Back Your Security Deposit. 

Consider seeking advice from a legal professional. A lawyer can help you understand your rights and might assist with filing a claim in bankruptcy proceedings. For more information, see Finding and Hiring a Lawyer. 

Yes, you need to keep paying rent if your landlord is going through bankruptcy. Your obligation to pay rent does not change because of the bankruptcy proceedings. Your lease agreement remains in force despite the bankruptcy. This means you are still legally required to fulfill your obligations under the lease, which includes paying rent on time.

For more information, see Rent and Paying Rent. 

Depending on the type of bankruptcy filed and the stage of the proceedings, you might be instructed to pay your rent to a different party, such as a bankruptcy trustee or a new property owner, if the property is sold during the bankruptcy. It's important to follow any official instructions you receive regarding where to send your rent payments.

Failing to pay rent could result in eviction proceedings against you. Even in bankruptcy, the landlord (or the bankruptcy trustee, if the property is part of the bankruptcy estate) has the right to seek eviction for tenants who do not pay rent, subject to receiving permission from the bankruptcy court. For more information, see Evictions.