Texas Commercial Law Firm

After foreclosure, the purchaser and the tenant may become landlord and tenant. This may occur in two ways: 1) they may decide to agree to the terms of the lease agreement which was in place at the time of foreclosure or they may enter into a separate lease agreement; or 2) if the tenant makes payments to the purchaser and the purchaser accepts such payments, the purchaser will have become the tenant's landlord under the terms of the prior lease under an implied agreement. Peck & Hill's Furniture Co. v. Long, 68 S.W.2d 288 (Tex. Civ. App.--Fort Worth 1934, no writ); United General Insurance Agency of Midland, Inc. v. American National Insurance Co., 740 S.W.2d 885 (Tex. Civ. App.--El Paso 1987, no writ). Many purchasers accept such payments from the tenants without realizing that it will obligate them under the previous lease agreement. There are a number of problems that may arise for the purchaser who accepts payments from the tenants. For example, by continuing the lease in effect, the purchaser may become liable for the security deposit paid to the former landlord who lost his interest through foreclosure. If the lease has clearly terminated and payments have not been accepted by the purchaser, then the purchaser is not liable for any unreturned security deposits. Tex. Rev. Civ. Stat. Art. 5236e, §5(a); United General Insurance Agency, Inc. v. American National Insurance., 740 S.W.2d 885 (Tex. Civ. App.--El Paso, 1987, no writ). Where the lease is not continued, the tenant's only recourse to recover the security deposit is against the former landlord. It is not uncommon in such situations, however, for the purchaser to honor the security deposits made by the tenants in the event they wish to keep the tenants on the premises.

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