My Landlord is in Foreclosure, Should I Pay the Rent?

The foreclosure crisis is all over the news. Even a thriving business can fall victim if their landlord goes into forclosure. What are your options?

No doubt about it, times are tough, even for landlords.

This is especially true for commercial landlords. Commercial and mixed use properties developed, sold or refinanced at the height of the real estate market are now distressed. If the landlord owes more money to a bank than the property is worth, then the property is “underwater.” 

But unlike homeowners who generally have a 30-year mortgage, commercial property loans usually require a “balloon” payment after 5 or 10 years, requiring that the owner refinance the old loan.  If the property is underwater, that may be impossible.

Over the last few years, commercial property values have gone down while vacancies have increased. Every time a tenant goes out of business, it
puts pressure on the landlord to find a new tenant in a depressed economy to be
able to keep making payments on the mortgage.

With increasing frequency, owners of these properties are throwing in the towel, and the bank begins foreclosure proceedings. As a tenant, you may hear about it through the rumor mill, but you will likely get notice from the landlord or the bank or from a management company.

So how does this affect you as a tenant? Unless you absolutely hate your landlord, it will not be in a good way. Some properties are managed with little
disruption, while others have major issues. A bank will usually have a management company put in place to collect the rent and to address the ongoing needs of the tenants. Over time, the property may seem to slip — the management company is slow to make repairs or perform services like
collecting the trash or cleaning common areas.

Upgrades are of course out of the question, since the bank is losing money on the property, you can expect a bare minimum of investment or resources. Some tenants even resort to not paying the rent for any one of many reasons: they think they are entitled to given the condition of the property, they do not have the money to pay it, or because they don’t believe the bank will risk having another vacancy on the property.

So if you see other tenants not paying the rent, you will have to ask yourself, “Should I pay the rent?”

The answer depends upon how much you fear the consequences. Your lease is a contract, so check the terms of your lease. If it does not allow you to withhold rent for any reason, you can be evicted and you can be sued. Even if the bank or its management company is not aggressive in collecting the rent, once the property is transferred to a new owner, the new owner may immediately try to evict you based upon that conduct. 

Commercial tenancies typically can be terminated much more quickly than residential tenancies, so there is a risk that by letting the rent go for several months, you may need to come up with all of the back rent at once to avoid having to shut your business down and find a new location. This could be particularly disastrous, especially if you have no intention of leaving your current location.

If your landlord goes into foreclosure, you need to be concerned and make your contingency plans immediately. If you are a commercial tenant, you may be listed as a defendant in a foreclosure action. This does not mean you will be thrown out, but it could impact you nevertheless. Even if this does not happen, you should be concerned that the property will go downhill depending upon how long the process drags on, and this may have a negative impact on your business.  

Your rights as a tenant are spelled out in your lease. If you did not read it when you signed it, you will want to now. Even if you did, you should refresh your
memory and read it again before you make any decisions. If you are not sure of what it means, or what your options are, seek legal advice. Before you do something rash like defaulting on a lease, recognize that you may have other options. You may be able to declare a default, terminate the lease and take advantage of other vacancies in a better location.

If you are paying above market rent, the threat of a default may help you negotiate with the management company, the bank or your new landlord once the process is done. Hopefully, at the end of the process, you will be able to navigate the storm better than your landlord.

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

Clarence Oveur September 30, 2012 at 10:17 PM
I don't know about you, but I'm gonna follow George on Twitter. I want to learn more about... you know... the ass kickn' end of biz. gov purple daisy boots and stupid geniuses. Or whatever he was talking about.
George Clark September 30, 2012 at 11:00 PM
I so trying to teach you history but you learned that in college already. When those working 60 work weeks get less and less for their hours, revolution is inevitable. but you already knew that because you seen it all before and again in arab spring. well, spring hopes eternal and revolution will follow here as well. you might not be ready for it, but many more I think are. If not now, when?
Donna Griffin September 30, 2012 at 11:13 PM
So much interest in what Mitt Romney has "said" and so little concern over what President Obama has "done."
Donna Griffin September 30, 2012 at 11:20 PM
George - That's only if you believe that we live in a zero sum gain nation. The America I know (or at least used to know) offered its citizenry unlimited opportunity to share in a pie of unlimited size. The only thing holding one back from success was oneself. Since when has wealth earned through honest means become so sinful? I've always admired successful people and have attempted to emulate their hard work philosophy. I can't imagine that we would point to a poor person and tell our children that is the future to which they should aspire.
Patrick October 01, 2012 at 12:03 AM
Many of the iPhones and iPads are made in Brazil... and sure Apple would love to make the iPhone here, not that they would do it to help America or anything, but they can't. Forbes had a great piece about why Amazon can't make the kindle in the US even if they wanted to... http://www.forbes.com/sites/stevedenning/2011/08/17/why-amazon-cant-make-a-kindle-in-the-usa/ The problem isn't that really that it is cheaper overseas, but that American companies had abandoned the R&D and investment is technology, leaving it to Korea and Samsung, Taiwan and Foxconn... etc etc.Tax breaks for companies isn't going to spur this sort of growth, in fact in some areas of tech we are so far behind it is doubtful even with full investment we will ever be competitive. Like TVs. Where is your American TV? RCA was sold off to Thompson who sold it off again. Zenith is owned by Korea's LG. So its easy to say we need to less regulation less tax etc etc to spur growth, but fact is we transferred from a manufacturing to a service economy in the 70's 80's and because a country of innovation in the internet boom... So we may not make the stuff anymore in a flat world... But we have to invent the stuff. That means educating people properly, and by that I mean critical thinking. So neither of us is going to solve the issues of this country here. But I would like you to have an open mind and read the forbes piece. It really explains a lot of our problems.
Patrick October 01, 2012 at 12:09 AM
In my perfect world, teachers would teach. not to a test, not be babysitters. but teach. as in critical thinking. And after grade school, you'd go to a high school of your choice. IN THE PUBLIC SYSTEM. Want to study science. you study at the county science high school... same for vocational arts etc. I think we all know that if we are engaged in things we are interested in, and see a future in it we are much more motivated. But what do I know. I'm not a teacher and never went to public school.
Patrick October 01, 2012 at 12:12 AM
I just keep waiting for you to ask someone if they've ever been in a Turkish prison before... Rodger.
Patrick October 01, 2012 at 12:14 AM
Patrick October 01, 2012 at 12:15 AM
I sure hope you are drinking. and power to the people and all that.
Patrick October 01, 2012 at 12:19 AM
I'd just like Romney to explain how he cuts the debt with his plan, and how you cut taxes across the board by 20% and don't raise said debt. Cause he keeps talking about his business experience, but he was a vulture capitalist. buy and break up. So is the plan to break up California in smaller much more profitable states and selling off the non revenue part of the state to say Canada.
George Clark October 01, 2012 at 12:20 AM
donna, where is this unlimited pie you speak of? Made up money? With everything for sale, by giving this great wealth to any few give away everything for all. You wonder why laws are written deliberately to help rich get richer? Big government aide to big oil already crushing us? Your very democracy is a sham and is sold to china. You want it all and a big bank account in switzerland too? There is no unlimited pie. Just look at the charts. That ticker they show behind romney and ryan was made taken by whom exactly? We can't even follow the money cause that wouldn't be american to see where it all went. If you think the only one holding one back is oneself you better wake up. I think you give our country and it's free market too much credit and confidence in the system. We see all the rules being broken and changed so the few paying for these things pull away from the pack even faster till it all collapses and they wipe a bunch out say 47%ers. Where have you been while all this was happening? On the patch complaining about it? Me too, but that does no good. Better call you store bought reps in gov and see where that gets us. nowhere. So, as they say, a riot is a very ugly thing. And it's about time we had one. lol. Seems the only way to fix things is to break them first in this world. This system is already broken. Think romney will fix the loopholes, lies and aholes in power across this the land of the fee home of the nave? oops spell check.
Donna Griffin October 01, 2012 at 12:37 AM
Patrick - A point we can both agree on. Only difference is that I would have the $$$ follow the student from kindergarten through 12. Critical thinking, logic, comprehension...we're on the same page. Kids are indoctrinated early on and rarely is debate welcomed (even moreso at the college level). I truly believe that with a failing educational system internationally, we must be open to any and all alternative learning styles. Vocational/Technical training is crucial and an honorable alternative for many kids. There are a lot of plumbers coming out of the VoTech system with jobs in hand passing those college grads with teaching certificates. Clearly, what we have going on in public education is a bust.
Donna Griffin October 01, 2012 at 12:55 AM
George - First off, who is "giving" this great wealth of which you speak? Last time I checked, wealth is "earned." As a small business owner, I can assure you....I did build my business unlike the President has said. Long hours, lots of risks and a determination to be damn good at what I do allowed my family and I to live a comfortable life. For this, you seem to feel I need to apologize?!?! I've created jobs, I've paid my taxes, I have no debt and I've volunteered my time and money to charitable causes. For this, you wish to demonize me. As a child of immigrant parents, I was taught that one creates his own good fortune and to never put your hand out and take from another. I am not jealous of other's (including corporate) success. In fact, I admire it. I think that success has no bounds, hence the pie is limitless. I am concerned, however, that our government is moving toward a nanny state at such an alarming rate that those with wealth will seek an exit strategy. The overwhelming government intrusion into every aspect of our lives and the burdensome regulations created on a daily basis (e.g., Mayor Bloomberg's food police) are eroding our personal freedom. Who will pay your bills then, George?
Patrick October 01, 2012 at 01:41 AM
Plumbers can easily make over 100k and same for electricians, HVAC ... See I know your intentions are good, and I'd hope while we may disagree you at least understand that mine are as well. That is another huge issue. There is so much cynicism and vitriol driven by the talking head pundits who really just have their next book to peddle, that we forget while we disagree as long as we have what we believe to be the best interest of the nation we can find solutions.
Bob English October 01, 2012 at 01:47 AM
Donna...I am not pointing the finger at any administration...note though that the closest the this mess came to getting fixed was when the President, other Dems, moderate Republicans and the Speaker of the House were very close to finalizing what was called "the grand compromise" which would have cut future projected deficits by trillions. Unfortunately the extreme right Tea Party members of the House would not support their own Speaker...result...no deal.
Donna Griffin October 01, 2012 at 04:19 AM
Bob - The problem with the "compromise" was the tax increases. Whether the increases would have a greater impact on the wealthy or the middle class was a moot point in my book. Again, the problem is not that the federal government does not have enough money...it is that the federal government spends too much. To cut with one hand and spend with the other is foolish by any standard. The spending cuts and serious determination to rid programs of fraud must come first. Eliminate the Department of Education while you're at it and issue pink slips to 99% of the czars who answer to the President. I am not a believer in compromise on a bad idea. Lukewarm legislation produces lukewarm results. I'll pass on that. Thank God for the Tea Party patriots. Someone has to say that enough is enough. Time for our elected officials to come up with ways to trim the fat....much like we are all doing in our own households.
George Clark October 01, 2012 at 05:24 AM
Donna, you think you've built your little empire and it can last among the true powers or the big empire? you are truly mistaken. this is a dog eat dog rat racing after as much cheese as he or she can get as the ship we are on is sinking. You, being a small business owner must see that your are but a small fish in a sea of cannibal fish that is killing the school. Have you learned that yet? imagine your are a small speck on an infinite and dangerous universe fighting for the survival our your very speices. Because that's exactly what we all are in the big picture. you can bury your head in all you money laiden mattresses but the fact remains your only fooling ourselves by thinking it's every man for himselves and the best or fittest will and should survive. I hate to brake it too you all, but that'sl not how evolutions works. dah..... See the picture that's bigger then your fleeting private little heaven where you win and the losers lose alone. God, we are all so vain and arogant, Aren't we? Shall I have our God teach us this lesson the hardest and most painful way? I know you all must be smarter and more evolved then this. Don't I? Doesn't he trust we will come to our senses? shalom
George Clark October 01, 2012 at 05:35 AM
Yes pat, I drink often to dull my senses. It helps to see the future we are headed for in a drunken state not unlike your own. But you are drunk on your own greatness and power. Your drunk on cheering for ball players and political liars. Your drunk and stupid on thinking this empire will end any better then all the rest have ended. But a new light shines in your rearview mirrors. It's the light of the real "police" pulling you over for not obeying the traffic laws and all the other laws of survival. And the power will be with the people again and for always soon enough. As some Bush league president once said " you can fool me once, shame on you, but if you fool me again ereerer...... how 'd that go again from that great president who got us this wars and all the deceit that we bought into because they pearl harboured your corrupt changing tables? aka twin towers
frank rizzo October 01, 2012 at 08:08 AM
wow i see the full moon has really brought out all those who have tea bags hanging from their hats. last week the gop blocked funding for vets for things like suicide counseling and jobs programs. now this 6% approval rating republican congress are about to let the farm bill expire. once it does in january the govt will go back to paying higher than the market price for milk. the price will double to $6 a gallon. all thanks to republicans those on this thread voted in. now they will vote for romney a guy who doesnt understand why airplane windows dont open. if romney wins i cant wait to hear the regret from joey bagadonuts and jersey swamps etc when they realize the tax loophole romney is going to close will be on middle class homeowners who will lose their mortgage interest deduction and their children as dependents. bob you,ll never get through to them. these are the same people who voted twice for bush and once for sarah palin.
frank rizzo October 01, 2012 at 08:11 AM
frank b reagan was the president who began tapping the social security fund in 1985 to fund star wars.
jerseyswamps October 01, 2012 at 08:53 AM
Nice. I made it to a rizzorant.
Clarence Oveur October 01, 2012 at 11:13 AM
^ This is a ridiculous statement and shows a profound ignorance of the federal budgeting process. I would commend to your attention a document entitled, "Research Note #20: The Social Security Trust Funds and the Federal Budget", which can be found at SSA.gov.
DRL October 01, 2012 at 11:25 AM
Just by the comments, you can see who pays for everything we have and who wants the handouts..OBAMA has got to go and we have to get back to the RIGHT way to live. EARN WHAT YOU HAVE..stop looking for handouts
Bob English October 01, 2012 at 11:31 AM
Donna...the only tax increase would have been letting the Bush tax cuts exprie on incomes of 250k or more. The President was also proposing to eliminate some subsidies such as the $4 billion that the largest oil companys receive of our $$$ even though they are making more profits ($30 billion+) in the history of the universe. On the spending side, the President (and almost everyone else) was looking at cutting and reforming future entitlements that would save trillions. That is the deal that the far right memers of the House would not accept, Note that every non partisan studey of debt redcution that I have ever seen concludes that a comibination of some addittional revenue along with huge spending cuts/entitlement reforms are needed. Since the speding cuts affect the low and middle income /peoplefamilies, its not an unreasonable plan to have the wealthiest contibute jsut a little bit more (basically putting the top rate back to what it was in 2000 since it should never have been cut in the first place at a time the country became involved in two unpaid for wars.)
BW October 01, 2012 at 11:53 AM
WOW did this subject go off topic! Yes if your landlord is in foreclosure you MUST pay the rent or the bank/management company will evict you. As a clause in the lease about not with holding rent, WRONG. If the property is in need of major repairs, you can go to the court and file a claim against the bank/management company to have a judge force repairs. When you do this you place your rent with the court who will hold it in an escrow account. Once the case is heard, the judge usually gives them x amount of days to make repairs and schedules another hearing to see if they comply. During this process you continue to pay your rent to the courts escrow account. If they do not comply to the judges liking, the judge can order all or part of the rent to be returned to you and again order repairs. If it gets this far the judge will instruct you what you can pay for rent and to whom.
BW October 01, 2012 at 11:56 AM
On the other topic, out of 46 million collecting food stamp, medicaid housing etc, 50% of them are "anchor babies". Stop giving benefits to illegals, change the citizenship to at least 1 parent must be a citizen for the child to be a citizen, and it will cut the debt obama created way down. The answer is simple, yet everyone in congress is afraid to take that first step for fear they will not be re-elected and loose the golden benefits and perks they get now.
Donna Griffin October 01, 2012 at 11:59 AM
Bob - The next downturn in the economy will be in January exactly when the Bush tax cuts expire (if Obama is re-elected). The more critical downturn (and perhaps the final blow to the economy) will be when the Obama healthcare taxes kick in and our medical delivery system morphs into a very different animal than we have been promised. That, my friend, has already started. Again, taxing ourselves into prosperity will never work. Allowing tax cuts to expire is a tax increase. Watch your home mortgage deduction....that's next. But I guess if they sell it as an "expiration of a deduction" it sounds a whole lot prettier. With the oil company subsidies, I might bite on that one if we also include losing the solar company and auto industry subsidies. The federal government ought not be in the job of picking winners.
Donna Griffin October 01, 2012 at 01:23 PM
George - You need a hug. I choose not to swim in the "victim" pool of which you speak. The world owes me nothing. I am not afraid of hard work and consequence. You may wish to live a paranoid life. I, however, choose not to do so. I'll keep you in my prayers....you need them.
Roman December 05, 2012 at 10:22 PM
Sorry Mike- Perhaps you should have written a different article. Your story about real estate lending is just not as interesting as political banter & socioeconomics. Now I'd like to discuss the Romainia's Women's Gymnastics team - boy do they piss me off.
luc hellson December 31, 2012 at 12:05 PM
DUMB question -- of course you ahve to pay your rent -- escrow it if you must. As the federal government is going bankrupt -- maybe we don't have to pay our taxes?


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