Many homeowners worry about their tenants during foreclosure.  They may have been served with the foreclosure action summons as “John Doe” defendants – because the bank attorney does not know the tenants’ names.  The goal of the bank is to cut off the tenants’ rights so that they will have to leave at the end of the case – after an auction.  But what happens during the case?  For the most part, it’s business as usual for landlord tenant issues.  The tenants must pay their rent or the homeowner can evict them.  Of course, landlord tenant court is a nightmare for the landlord in New York but it doesn’t mean the tenant gets a free ride.  Unless the bank has obtained the appointment of a receiver to collect rents and manage the property, the tenants must pay the owner or face potential eviction proceedings.  I have been a receiver myself and represented and opposed them in litigation.  Receivers are typically appointed for income producing properties but most banks don’t bother with them for 1 to 4 family homes because no one will want to accept the appointment.  Receivers are paid a commission based on what they collect.  If the rents are low, the receiver’s earnings will also be low.

Understanding that tenants have to pay to rent their homes is a key thing for owners trying to figure out their strategy.  If, for example, you are an owner getting $3500 per month in rents from 2 tenants, that means you are earning a gross income of $42,000 per year.  If it costs you $5,000 to $10,000 to litigate against the bank for 2 years, this is a no-brainer.  During those two years, you will earn a gross rental income of $84,000 under this example.  Even after the legal fees, you would have earned gross income of $74,000 to $79,000.  If you elect not to hire a lawyer to answer the summons and fight the case, the case will move much faster.  The bank will file a motion for a default judgment against you and quickly move to a final judgment and auction.  If you have an attorney and you answer the summons with defenses and counterclaims, the bank will have to file a motion for summary judgment.  You might win if you have good defenses and the right attorney.  You may not even know what your defenses are until you get the right attorney.  But even if you lose the case, your lawyer would have prolonged it, enabling you to collect more rents.  There is never any good reason to be pro se if you have tenants in your property during a foreclosure.  The rents more than pay for the legal fees and should leave a lot of money in your pocket.