Gina Branch

As usual, I found myself in a lively discussion this morning. Having published, The Field Guide to Short Sales, I get asked some really tough questions from time-to-time. 

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Here’s the situation:

A tenant signed a one-year lease using the Texas Association of REALTORS® residential lease.  They took possession of the property and have been paying the rent on-time for the last 13 months.  The lease was not renewed and is continuing on a month-to-month basis.   About a month ago, they started to receive notices in the mail addressed to the landlord from the mortgage company.

Being concerned, they confronted the landlord. He told them he was going to list the property “for sale” with a local broker and that the tenants could stay while he marketed the property.  When he secured a buyer, he would give them the 30 days notice required under the lease.

The tenants eventually figured out that the landlord was in default on his mortgage and was trying to Short Sell the property.  At that point they quit paying the rent. When confronted, they commented, “If the landlord is not paying the mortgage company, we’re not paying the rent.”

My thoughts:

My initial reaction was that the payment of the mortgage by the landlord and the payment of the rent by the tenant are two separate issues.  I reviewed both the Texas Property Code and the Texas Association of REALTORS® residential lease form. There’s nothing that ties the two issues together.

The tenant defaulted on the lease by not paying the rent and is liable for late fees, court costs, and other relief available in the lease.

The landlord has not defaulted on the lease because the property is still available for the tenant’s use.

Epilogue:

This is a growing problem as foreclosures continue to climb.

If you are a tenant in this situation, you should seek legal advice before you simply stop paying the rent. State Laws vary and each lease may contain different clauses.

If you are a landlord, you should seek legal advice as well. If the property goes into foreclosure during the lease, you may be in default and liable.