Foreclosure rights without written lease agreement

Rent it Right

Janet Portman
Inman News™

Q: I am a tenant in a house I rented last summer, planning on staying a year, but soon after I moved in, the owner told me that he was having trouble making his mortgage payments. Last month the bank foreclosed and I just got a 30-day notice. Unfortunately, I don’t have a signed formal lease. Can they do this? –Abigail M.

A: Let’s begin with your statement that you don’t have a "signed formal lease." Your regret as you report this suggests that you think it’s a problem, but that’s not necessarily so.

First, let’s dispense with the term "formal." That word has no legal meaning. Either you have a lease (or rental agreement) or you don’t. The question isn’t whether you signed a lengthy document with appropriate pomp and circumstance, but simply whether you and the landlord reached a true agreement when you struck the deal.

As long as you had a "meeting of the minds," in which you both agreed to the key terms of the arrangement, you had a contract. That you didn’t reduce it to writing in this context does not make it invalid.

An oral lease (for no more than a year) or an oral rental agreement (renting month to month, until one of you terminates) is perfectly legal. It’s always better to put your arrangement in writing, but failing to do so doesn’t make the underlying agreement invalid or unenforceable in court.

So the question really is: What did you and the landlord agree to? You were "planning on staying a year," but that doesn’t necessarily tell us that you and the landlord agreed that you had a lease for a year. Instead, you might have agreed to rent month to month, hoping that you’d be happy and would stay on for a year.

You can probably already see why it’s always a good idea to write down the terms of the deal and have everyone sign it: As long as the written agreement is clear, there will be no problem figuring out the terms, including how long the arrangement was supposed to last and how it could be terminated. With an oral agreement, you’re at the mercy of each other’s memories (and possible biases).

Now let’s get to the nub of your question: Could you be tossed out by a new owner on 30 days’ notice, following foreclosure? That depends on who bought the property, and for what reason:

  • If you had a lease, and the new owner bought directly from the foreclosing party (the bank or lender), and is a natural person who intends to live in the house as his or her primary residence, that person can terminate, but must give you 90 days.
  • If you had a lease and the purchaser is a corporation, real estate investment trust or other legal entity, or an actual person who will use it other than as a primary residence (as a rental, for example), you are entitled to stay for the length of your lease, just as you would if the home had been sold in a regular sale to a new owner.
  • If you had a monthly rental agreement, however, your agreement can be terminated on 90 days’ notice, no matter who buys at the sale. Still, that’s better than 30 days.

If you believe that you and the prior owner had a lease, you’ll need the prior owner’s cooperation to bolster your claim to the new owner (and possibly to a court, if you refuse to move and trigger an eviction) that you’re entitled to the protections for lease-holding tenants. Without a written document, you’ll want at least a sworn declaration from the prior owner stating that your oral agreement was intended to be a lease. Hopefully, the new owner will believe the two of you.

Q: I use a resident property manager to screen and choose my tenants. He is supposed to order background and credit checks (I pay him for these tasks). I’ve just had to evict a tenant, who left (with) unpaid rent and lots of damage, and have learned from an acquaintance of the manager that he often skips the screening, to save time and money. Had this tenant been screened, he would never have gotten the place (he has multiple evictions and terrible credit). Can I sue the manager for his failure to follow through on his duties? –Annika R.

A: From the sound of things, your resident manager is probably your employee as well as your tenant. Even if you do not pay him directly, but instead charge him reduced rent, legally speaking he is an employee. You’re asking whether you can sue an employee for failing to follow instructions and consequently causing you financial damages. Of course, you can sue anyone for practically anything.

The real question: Do you have a case? One that will survive legal challenges and, just as important, convince a judge or jury to side with you?

Employees often make careless mistakes in the course of doing their jobs, and sometimes those mistakes result in injuries or financial damages. But you rarely see employers suing these workers. Instead, they are more likely to fire these employees, and look to their business insurance policies to cover the cost if a third party is injured.

When the fallout is financial only, insurance is not always going to help, however. In those cases, employers are left to chalk it up to "the cost of doing business," and the smart ones take a lesson: They tighten up their hiring, training and supervision practices so that it doesn’t happen again.

And on a practical level, an employer who became known for suing workers who make honest mistakes would soon find itself having a hard time hiring new workers. Who would want to work under such a threat?

What you’re describing, however, appears not to be mere carelessness or negligence, but a deliberate decision to disregard your instructions. Your manager has taken your money but has not done what you paid him to do — that’s fraud.

You could, if you choose, sue for the return of the money that was supposed to be spent on credit reports and screening. Because the manager’s acts were so clearly contrary to what he was paid for, you might have a sympathetic case.

But whether you could also recover for the costs of evicting the bad tenant, plus the cost of repairs, is debatable. These are consequential damages of the manager’s actions. To recover these expenses, you’d need to show you would not have had to pay them if the manager had screened properly.

It would have to be absolutely clear that your manager, had he pulled and reviewed this tenant’s credit report, would have excluded the tenant from consideration. You’d need to have good proof of your standards, such as written instructions to exclude anyone whose credit score falls below a certain cutoff.

Without a bright line test that could have been applied to the credit report, you may find it difficult to show that, but for the failure to screen, this tenant would not have gotten the nod.

From a practical standpoint, too, it probably makes little sense to go after your manager (hopefully your ex-manager by now). Instead, focus on the future and consider how you can assure yourself that your next manager is doing what you pay for.

It’s not burdensome to ask for credit reports, and notes of conversations with employers and past and current landlords, for applicants whom your manager has supposedly screened.

Yes, reviewing those documents is precisely what you had hoped to avoid by off-loading this task to your manager. But like any employer, when you become complacent and fail to verify that your employees are working as expected, you risk being taken advantage of.

Janet Portman is an attorney and managing editor at Nolo. She specializes in landlord/tenant law and is co-author of "Every Landlord’s Legal Guide" and "Every Tenant’s Legal Guide." She can be reached at

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Copyright 2011 Janet Portman