In today’s market, owners of real estate are desperate and may offer unconventional forms of financing, or seller financed deals. A seller financed deal typically leaves the seller/owner with a deed in their name, but enters into a contract with a buyer such as a lease purchase agreements or a land installment contract that may grant the buyer a legal interest in the property.
These types of agreements can be beneficial to a buyer that may have difficulty obtaining a conventional mortgage; however, it is also very risky. If the owner/seller fails to pay his/her underlying mortgage on the property, the lender may file a foreclosure action on the property, and the tenant/buyer stands to lose any investment they made on the property through the lease purchase agreement.
Although a buyer may lose the contractual right to purchase the property if a foreclosure action is filed, they do have protections as a tenant under the Protecting Tenants in Foreclosure Act of 2009 The most important right as a tenant in an Ohio foreclosure action is that the owner/landlord no longer has any legal rights in the property once a court grants a foreclosure judgment and confirms the sale of the property through a sheriff’s sale. This is important because once the Confirmation of Sale is issued by a court, the owner/landlord no longer has any rights relating to the property, including the right to collect rent.
A tenant also has rights and protections with the new owner. Upon request/notice of the new owner, the tenant will be obligated to pay rent to the new owner. If the new owner intends to become the landlord, then s/he has to allow the tenant to finish the term of the lease with the previous owner. If the new owner intends to live in the property, then the new owner must give the tenant at least 90 days to vacate the property. The owner can offer cash incentives to encourage the tenant to vacate the property before the end of the lease term and/or 90 days, but the tenant is not obligated to accept the incentive.
In this volatile real estate market, buyers should be very cautious of entering into risky seller financed deals and should always have the agreement reviewed by an attorney. If you have questions regarding your rights and obligations as a tenant when caught in the middle of a foreclosure action, contact an attorney; do not rely on promises or assertions of an owner that may be looking out only for their own interest.