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The Importance of Understanding Landlord/Tenant Laws for Foreclosure Properties

The first thing a residential real estate investor must understand about this critical subject is that legal issues will inevitably arise between landlords and tenants. The investor (and his property manager) should always endeavor to avoid litigation with tenants, however both must be aware of all local laws and customs and be prepared at all times in the event legal action does arise. When dealing with foreclosure properties, these issues become even more pressing.

If an investor is interested in exploring a new geographical area – especially an international one with which he is not personally familiar — he or she should include investigating local landlord/tenant laws as a part of the due diligence process. Both landlord and tenant have certain legal obligations to uphold and typically strict procedures and timeframes must be adhered to protect the investor and his property.

In Arizona, the Secretary of State oversees these statutes. The full Arizona Landlord & Tenant Act may be downloaded here

Arizona’s State Supreme Court handles affiliated judicial actions. Information and a link to the specific forms required for evictions in Arizona may be found here

Some federal or state laws may also be applicable, particularly with regard to Federal Fair Housing issues, information on which can be found at HUD’s website.

These issues become particularly important for the investor purchasing foreclosure properties. If a property under consideration has tenants in place, this issue has the potential to affect the investor in a variety of ways, most of which has the potential for legal implications. Holdover tenants have rights and the tide of public opinion and sympathy most often lies with the tenant.

Although it may be difficult to determine how the property’s prior owner have handled their tenant, the investor purchasing a foreclosed property with tenants in place will typically be responsible for the tenant’s rental deposits or other advance fees they have paid to the prior owner. If the foreclosing lender has named the tenant in the foreclosure action, with the hope of using the foreclosure action to evict the tenant, this may have significant legal implications on the investor who purchases the property.

A variety of community grass-roots advocacy groups have sprung up around the country. These groups often act to assist a tenant who feels they have not been treated fairly as victims of a foreclosure action. Should one of these groups become involved, the investor runs the risk of court costs or other expenses to defend themselves as well as attracting the attention of a tenant-sympathetic media.

To best avoid problems relating to holdover tenants in a foreclosure action, and to ensure that all applicable laws and tenant protections are considered in the due diligence process, the investor should always engage the services of a reputable local real estate broker or other legal professional. In matters of this nature, the utmost care is always the safest course of action.

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