When buying a home occupied by renter, buyers should be aware of some key issues when purchasing a short sale or foreclosure property occupied by a renter. Legislation called the Protecting Tenants at Foreclosure Act of 2009 is relevant to these transactions. This piece of legislation applies where:

• A lease agreement was in place before the notice of trustee’s sale was recorded

• The tenant is a bonafide tenant.

• The lease agreement calls for a fair market rent.

If these conditions are met, tenants cannot be evicted upon the short sale or foreclosure of the property. This means buyers are required to respect the pre-existing lease agreement, and step in as the landlord on the property. This could be rental property, because it eliminates the need to find a renter.

Buyers looking to use the home as a primary residence, on the other hand, are required to give the tenant at least 90 days to vacate the premises.

Buyers who wish to take possession before the lease ends may be able to come to an agreement with the tenant and the seller to shorten the lease.

However, because the law affords tenants 90 days to look for new living arrangements, buyers should be prepared to delay possession when purchasing one of these homes.

Aaron M. Finter is a real estate lawyer at JacksonWhite Attorneys in Mesa and Peoria. He can be reached at dweed@jacksonwhitelaw.com

Tenants Caught in Foreclosure

Under federal law that took effect in May, a tenant is generally entitled to stay in the rented premises after the foreclosure sale until the term of the lease expires. The lender or third-party buyer at the foreclosure sale, however, has no obligation to refund your security deposit to you when lease expires.

On the other hand, your landlord not making the mortgage payments for several months is probably an “anticipatory breach” of your lease. Therefore, you may not have an obligation to continue making rent payments to the landlord.

I would suggest that you negotiate with the landlord for the return of your security deposit in exchange for your continuing rent payments to the landlord if you stay in the property.

The bank has the right to have a receive appointed by the court before the foreclosure sale to collect the rents and, in that event, you would have to make the rent payments to the bank’s receiver and not your landlord.

Christopher combs is a real-estate attorney with Combs Law Group in Phoenix. Reach him at azrep@combslawgroup.com