After the foreclosure sale, when a new deed has been recorded with a new owner’s name on it, you go from homeowner to tenant. A commonly held belief is that you aren’t legally a tenant unless you have entered into a formal landlord–tenant relationship and agreed to pay rent. In fact, with a couple of exceptions, you are considered a tenant (typically termed a tenant at will or tenant by sufferance). You are entitled to remain in your home until you are evicted using the same court procedures that apply to other tenants—except that you may not get as much notice that you must leave.
The first step toward eviction is to send you a written notice stating that you must move out. (See our Summary of State Foreclosure Laws for the rules on what kind of notice you are entitled to in your state.) How soon you are likely to get such a notice depends on who owns your house after the foreclosure sale: a new buyer or the lender.
If Someone Buys the House
If, at the foreclosure sale, your house is sold to a new owner, that new owner will likely want possession of the property as soon as possible. You may receive a termination notice days or weeks after the auction or sale, just to get the process moving. Exactly when you can expect this termination notice will depend on the new owner’s agenda and the experience the new owner has in removing tenants.
If the new owner wants to occupy the house and has experience in evicting tenants, you can expect the notice to come sooner rather than later. If, on the other hand, the new owner is a business that buys and resells foreclosed homes, there might be a significant delay before you get a termination notice, just for bureaucratic reasons. And if the new owner is a novice in buying foreclosed homes and has no experience in evictions, you can expect a delay while the new owner finds a property management firm or lawyer to do the work.
If Your Lender Ends Up With the House
If the property is not sold to a new owner at the foreclosure sale (that is, nobody makes an acceptable bid), your lender will end up with title to the property. If this happens, you will probably have as many as three—and quite likely as many as six—months longer to remain in your home payment free. It depends on a few factors:
How ready your lender is to sell. Most lenders have little or no expertise in selling homes and evicting occupants, so they bring in real estate agencies to handle those transactions. Your lender may already have a standing relationship with a real estate agency, but if it has to hunt for one, it can take a considerable period of time.
How easy it is to sell the house. Selling foreclosed properties can be difficult, especially when prices are falling and home values are uncertain at best. If your house is in an area where values are relatively stable, and the home is in saleable condition, the real estate agency will likely want you out yesterday, because the conventional wisdom in real estate circles is that vacant houses are easier to sell. Paradoxically, if there are a lot of vacant homes in your area, it will be harder to sell your home. If your neighborhood has a glut of homes for sale—whatever the reason—the real estate agency may not be in such a hurry to get you out, because in those circumstances vacant homes rapidly depreciate in value. In fact, you may be able to negotiate a lease that allows you to remain in the house and pay rent. Because the lender would benefit by keeping the property occupied, at least until property values stabilize, you may be able to arrange very favorable terms.
How many foreclosed houses are on the lender’s books. If your lender has more foreclosed properties than it knows what to do with, the property may sit for even longer than six months. But if the lender owns few foreclosed properties, your continued occupancy will be more noticeable and so more likely to generate action to get you out.