Can I Go Through With a Lieu of Foreclosure if I Have Renters in My Property?

A deed in lieu of foreclosure is a voluntary conveyance of the title to your home to avoid foreclosure. Your mortgage lender agrees to accept, and you agree to give, the title to your house directly to the lender. This allows the lender to avoid the hassle and expense of foreclosure. This voluntary transaction can proceed even if you have renters in the property, as long as both you and the lender are willing to carry out the conveyance.

No Foreclosure

Under federal law, residential tenants generally have the right to remain in the leased property even after a foreclosure occurs on the leased property. This rule is irrelevant to the deed in lieu transaction, because it does not actually result in a foreclosure sale. The voluntary deed conveyance from you to the lender occurs before a foreclosure sale occurs.

Lease Agreement

If the renters in your home have a written lease agreement then the lease agreement will remain enforceable even after you give a deed to your mortgage lender. This means the mortgage lender, as the new property owner and landlord, will have to allow the tenants to remain in the property until the written lease expires. Ultimately, then, the lender must decide whether it is willing to accept a deed in lieu when the lender knows it will have to act as a landlord on the property.

No Lease

If you and your renters have never entered into a formal lease agreement then the law considers your tenants month-to-month tenants. In this case, either you or the lender (after the lender takes title to your home) can evict the tenants after providing at least one month's notice.

Breach of Lease

The only possible restriction to offering a deed in lieu of foreclosure when you have renters is if your lease agreement happens to contain a provision that you, the landlord, agree you will never offer a deed in lieu of foreclosure. Most standard residential lease agreements do not have this type of provision, so most residential landlords need not worry about this issue. But, if your lease agreement happens to contain this provision then you can breach that provision by offering a deed in lieu of foreclosure, in which case the tenants may have a damages claim against you.

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