Ohio House Bill 181: Tenants of Foreclosed Rental Properties Have Rights

By James Doran, Esq.

Tenants of foreclosed properties have rights…or will have rights pursuant to Ohio House Bill (H.B.) No. 181.  Landlords, previous owners, successors in interest and rental agreements would all be impacted by the bill as well.

The Ohio Legislature has introduced H.B.-181 to amend Ohio Revised Code Section 5321.04 and to enact Section 5321.20 of the Revised Code to require that notice of foreclosure and related sale of residential rental property be given to tenants at that property and to specify that a rental agreement for a residential property that is sold pursuant to a foreclosure action converts to a month-to-month rental agreement.  H.B.-181 creates a right of action for tenants as well as potential liability for landlords and others in the form of monetary damages, injunctive relief and reasonable attorney’s fees for violations.

H.B.-181 impacts landlords, tenants, the previous owners of foreclosed properties, successors in interest to foreclosed properties, and existing rental agreements involving foreclosed properties.  A summary of how they are impacted by the bill is set forth below and then the highlights of the bill are described in more detail thereafter. 

Landlord:  A Landlord of a residential property that is notified of a foreclosure action must provide each tenant at that property written notice of the foreclosure action and sets forth the form of the notice.  A Landlord is required to provide each tenant written notice of the date, time and place of the sale of the foreclosed property at least 21 days before the sale date.  A Landlord is also required to include, in any written rental agreement, a provision informing the tenant of the landlord’s obligations under the bill.  Failure to do so could result in damages, attorney’s fees and injunctive relief.  

Tenant:  A Tenant may recover damages and reasonable attorney’s fees, obtain injunctive relief to enforce the rental agreement, or both, if a landlord or a successor in interest fails to abide by the provisions of the bill.  Tenants are entitled to a month to month rental agreement or can mutually agree with a successor in interest to keep the existing rental agreement in place.  A tenant is entitled to written notice of the date, time and place of the foreclosure sale at least 21 days before the sale date.  A Tenant is entitled to language in the rental agreement informing the tenant of the landlord’s obligations under the bill.  The Tenant is entitled to have the previous owner of the foreclosed property forward any security deposits paid by the tenant to the successor in interest to the property.  The Tenant is subject to the right of entry of the successor in interest subject to current law.

Previous Owner:  Previous owner, who was subject to a foreclosure, is required to forward to the successor in interest an amount equal to any security deposits paid by the tenant.

Successor in Interest:  Successor in interest assumes interest in rental agreement and becomes landlord under the rental agreement once the foreclosure sale has been confirmed.  Successor in interest assumes the right of entry to the property subject to current law (must give reasonable notice before entering, etc.).  Successor in interest can mutually agree with tenant to have existing rental agreement remain in place and not convert to a month to month.  

Rental Agreement:  all rental agreements convert to month to month rental agreements when the court has confirmed the foreclosure sale.  Any written rental agreement must include a provision where the landlord informs the tenant of the landlord’s obligations under the bill.  Tenant and Successor in Interest may mutually agree that the existing rental agreement will continue in effect with the successor as the landlord and not convert to a month-to-month rental agreement. 
 
Effect on Rental Agreement of Foreclosure of Residential Rental Property

The bill requires any rental agreement for a residential property that has been sold pursuant to a court order under a foreclosure action to convert to a month-to-month rental agreement upon the confirmation of sale by a court.  Also, upon confirmation, the successor in interest assumes interest in the rental agreement and becomes the landlord.  See R.C. 5321.20(A).  Confirmation generally takes place within 30 days after the selling authority, usually the sheriff, has advised the court that the property has been sold as the court ordered.  See R.C. 2329.31.

A “rental agreement” under Ohio law governing landlords and tenants (R.C. Chapter 5321.) means any agreement or lease, written or oral, that establishes or modifies the terms, conditions, rules, or any other provisions concerning the use and occupancy of residential premises by one of the parties.  “Residential property” is not defined by the bill or Ohio law governing landlords and tenants.  That law does, however, provide a definition of “residential premises,” which generally means a dwelling unit for residential use and occupancy and the structure of which it is a part, the facilities and appurtenances in it, and the grounds, areas, and facilities for the use of tenants generally or the use of which is promised the tenant and includes a dwelling unit that is owned or operated by a college or university.  Various facilities are excluded from the definition, such as, for example, places of incarceration or correction, hospitals, boarding schools, and orphanages.  See R.C. 5321.01.

Notice of Foreclosure Action

The bill requires any landlord of a residential property that has been notified by a court that the property is the subject of a foreclosure action to provide each tenant at that property written notice of the foreclosure action.  See R.C. 5321.20(B)(1).  “Tenant,” under Ohio’s law governing landlords and tenants, means a person entitled under a rental agreement to the use and occupancy of “residential premises” to the exclusion of others.  See R.C. 5321.01.  If the rental agreement is entered into before the foreclosure action is initiated, the landlord must provide the written notice of foreclosure within 60 days after having been notified by the court that the foreclosure action has been filed.  If the renal agreement is entered into after the foreclosure action is initiated, the landlord must include the written notice of foreclosure in the rental agreement.  See R.C. 5321.20(B)(2). 

Form of Notice

The above described notice must include a statement, printed in 14-point, Times New Roman font, in substantially the following form:

“This property is undergoing foreclosure.  For more information on this action, you should contact the (your county) Clerk of Courts for the Court of Common Pleas, (address), at (phone number).

A sale at auction may or may not occur as a result of this foreclosure.  Currently, [the sale of this property has been set for (time, date, and place)] or [no date for sale of this property has been established].  You will receive written notice of the sale at least twenty-one days before it takes place.

If there is a sale of this property at auction, your current rental agreement will convert to a month-to-month rental agreement upon the sale of the property.

Note:  With a month-to-month rental agreement, either the tenant or the landlord may terminate the agreement by providing written notice of termination to the other at least thirty days prior to a date on which the rent payment normally is due.  The rental agreement then terminates on that date.”  See R.C. 5321.20(B)(1).

Notice of Sale

The bill requires any landlord of a residential property that is the subject of a foreclosure action to provide each tenant at that property written notice of the date, time, and place of the sale of the foreclosed property at least 21 days before the sale date.  See R.C. 5321.20(C). 

Standard Notice in All Written Rental Agreements

The bill requires a landlord who is party to a written rental agreement to include a notice in the agreement that informs the tenant of the landlord’s obligations under the bill to inform the tenant in the case of a filed foreclosure action.  The notice must substantially conform to the following:

“The landlord must notify you within sixty days after a foreclosure action is filed that the property you reside in may be sold at auction pursuant to that action.  The landlord must also notify you of the date, time, and place of the sale at least twenty-one days before the date of the sale at auction.  If the property is sold at auction, the new owner will become your landlord, the rental agreement will convert to a month-to-month rental agreement, and the previous owner is required to remit to the new owner any security deposits that you have paid.”  See R.C. 5321.04(A)(10).

The bill provides an exception to the conversion to a month-to-month rental agreement if a tenant and successor agree to continue under the original rental agreement.  See R.C. 5321.20(D). 

Security Deposit Transfer

The bill requires the previous owner, who was subject to the foreclosure action, to forward to the successor in interest, within seven days after confirmation of a foreclosure sale, an amount equal to any security deposits paid by the tenant to the previous owner.  Each security deposit that the successor receives becomes the security deposit under the converted rental agreement.  The successor is liable as the landlord only for the security deposits that the successor has received.  See R.C. 5321.20(D).

Successor Landlord May Enter Property

The bill provides that the successor in interest assumes the right to enter a residential premises provided that the successor gives the tenant reasonable notice of the successor’s intent to do so.  See R.C. 5321.20(G).  This right mirrors that of a landlord under continuing law.  See R.C. 5321.04(A)(8).

Tenant and Successor May Agree to Continue the Original Rental Agreement

The tenant and the successor in interest may mutually agree that the tenant’s rental agreement, as of the date the foreclosure sale is confirmed, will continue in effect and will be enforceable with the successor as the landlord rather than convert to a month-to-month agreement.  See R.C. 5321.20(D).

Tenant’s Remedies

The bill provides that in addition to any other remedy under law, a tenant may recover the greater of actual damages or one month’s rent plus the security deposit amount and reasonable attorney’s fees, obtain injunctive relief to enforce the rental agreement, or both, if a landlord or a successor in interest, as required by the bill, (1) fails to honor a rental agreement or (2) fails to provide the required written notice of the foreclosure action or written notice of sale.

The rights and remedies provided for in the bill are in addition to, and do not preempt, any other rights and remedies that a tenant or landlord may be entitled to under law.  See R.C. 5321.20(E) and (F).

The following is a summary of the bill:

  1. Requires any rental agreement for a residential property that has been sold pursuant to a court order under a foreclosure action to convert to a month-to-month rental agreement when the court has confirmed the sale.
  2. Provides that a successor in interest to a property, subsequent to a foreclosure sale, assumes interest in the rental agreement and becomes the landlord under the rental agreement.
  3. Requires any landlord of a residential property that is notified of a foreclosure action to provide each tenant at that property written notice of the foreclosure action and prescribes the form of the notice.
  4. Requires the landlord to provide each tenant written notice of the date, time, and place of the sale of the foreclosed property at least 21 days before the sale date.
  5. Requires a landlord to include, in any written rental agreement, a provision informing the tenant of the landlord’s obligations under the bill.
  6. Requires the previous owner, who was subject to a foreclosure, to forward to the successor in interest an amount equal to any security deposits paid by the tenant.
  7. Provides that a successor in interest assumes the right of entry subject to current law.
  8. Provides that a tenant and successor in interest may mutually agree that the existing rental agreement will continue in effect with the successor as the landlord and not convert to a month-to-month rental agreement.
  9. Permits a tenant to recover damages and reasonable attorney’s fees, obtain injunctive relief to enforce the rental agreement, or both, if a landlord or a successor in interest fails to abide by the provisions of the bill.

H.B.-181 impacts landlords, tenants, previous owners of foreclosed property, successors in interest to foreclosed property, and rental agreements.  If the bill becomes law, the various parties must be familiar with its requirements and start implementing them immediately or run the risk of being found liable for violations.  Violations of the requirements could lead to injunctive relief, an award of damages as well as the payment of attorney’s fees. 

If you have any questions on this matter, please contact Mr. James Doran, Esq. James is an associate practicing in Consumer Collections and based in the Cleveland office of Weltman, Weinberg & Reis Co., LPA. He can be reached at 216.685.4289 and jdoran@weltman.com.

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