Move-out rights when foreclosure strikes

Rent it Right

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Jul. 7, 2011

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Rent it Right

Janet Portman
Inman News™

Q: I rented a condo last summer, planning to stay for a year. No formal lease was signed. The landlord told me in the winter that he was having trouble making his mortgage payments, and sure enough, the place was sold in April and I was given a month to move. I moved out, but wonder if I could have protested. --Jim F.

A: The key to your question lies not in the absence of a "formal lease." In fact, the phrase "formal lease" has no legal meaning. Instead, the question is what the parties -- you and the landlord -- intended when you reached your agreement.

If you both thought that the rental was for a year, but didn't reduce that understanding to writing, that simply means that you had an oral lease, which is enforceable in all states for up to one year.

An oral lease, for sure, is harder to prove -- if you or the landlord were to claim that the understanding was for a month-to-month deal, for example, you'd be in the uncomfortable position of having to rely on your memories to prove your positions (the classic "he said -- he said").

But this difficulty of proof does not mean that the underlying contract is not valid. It simply means that a judge would have a tough time deciding what that oral agreement said.

When you write that you were "planning" on staying for a year, was that wish communicated to the landlord? Did he agree, or even remain silent as you discussed your plans? Assuming he agreed (or you can prove that his silence signaled consent), then you had a lease. And here is where you lost your chance to push back when the bank gave you a 30-day notice.

Since May 2009, federal law has given tenants whose rentals have been foreclosed the right to stay in the rental through their lease term, unless the place is bought by a natural person (not a corporation or real estate investment group) who intends to move in.

In that event, tenants get 90 days to move out. And even if you were instead a month-to-month tenant (or you couldn't prove your lease-holding status), you would also get 90 days. So either way, you were told to leave much too quickly.

Q: The news recently covered the case of International Monetary Fund chief Dominique Strauss-Kahn, who was arrested in New York on sexual assault charges, and released to "house detention" pending trial. Because he doesn't have a home in New York, he had to rent one -- and his first landlord backed out of the deal. I'm curious -- did the landlord have grounds to refuse to honor the lease? And what about this house detention -- isn't that a nightmare for any landlord? --William D.

A: You weren't alone in noticing that Dominique Strauss-Kahn's lawyers apparently went to the bail hearing with a signed lease in hand, only to later learn that the landlord had decided not to go along with the deal.

The New York Times reported that one of Strauss-Kahn's lawyers noted that he could have insisted on moving in, but backed down in light of the furious opposition. Good move, that; Strauss-Kahn has more important things to worry about than fighting with his neighbors.

It's hard to imagine that the leasing agents at Bristol Plaza didn't know what they were facing. After all, not so long ago they turned down Bernard Madoff, another would-be detainee and hopeful resident, on the grounds that his presence would expose the rest of the residents to too much commotion.

Strauss-Kahn's wife apparently rented two apartments (at $23,000 a pop): one for the family and one for the security detail. According to the Times, "… a spokesman for Howard Milstein, the chairman of Milstein Properties, which controls the building, said, 'Howard is on the West Coast and not aware of this.' "

Your instincts are correct. Had Strauss-Kahn wanted to enforce his lease, his chances would have been pretty good. The landlord could hardly claim ignorance of the facts, or surprise, or deliberate fraud on the part of Strauss-Kahn's wife, who arranged for the rental.

In fact, the landlord's only argument would be that it had made a colossal error in judgment, and now wanted to back out. Alas, this is generally not a recognized reason to void a contract.

Just as a tenant can't decide to back out when he realizes that he could have gotten a better deal somewhere else, or that the presence of the nearby motorway will actually be more of an annoyance than he originally thought, so a landlord is bound once he signs on the dotted line.

In situations like this, landlords generally offer to buy out the tenant in exchange for canceling the lease. For example, if Strauss-Kahn can't find an equivalent rental property elsewhere, he might ask for the "benefit of his bargain" -- the value, in dollars, of the difference between the rental he ended up with and the rental he might have had.

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