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Generally, if the tenant files for bankruptcy protection, the trustee for the tenant's bankruptcy estate may elect to assume or reject an un-expired lease. If the tenant wants to assume the lease and keep it in effect, the tenant may have to pay all back rental payments and provide assurance of future performance under the lease. If the tenant rejects the lease, the tenant must give up possession of the unit and move out. The unpaid rent from the period prior to the filing of bankruptcy becomes a general unsecured claim of the landlord against the tenant, except to the extent of the security deposit. The landlord may also have a claim for damages for lost future rents.
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Very generally speaking, a foreclosure of the property in which the unit is located will not affect the lease. After foreclosure begins, the tenant should continue to pay rent in the same manner as before. When the foreclosure is complete and the title to the property passes, the tenant will get notice saying to whom and how to pay rent in the futureDuring the course of the foreclosure, a receiver may be appointed by the court to oversee the management of the property. If this happens, the tenant will be notified and should then comply with the court order.
Occasionally the foreclosing lender will want to terminate a lease prior to its expiration. Generally, the lender will be able to accomplish this by sending the proper notices of foreclosure to the tenant. If this should happen and the lender does not contact the tenant to reconfirm the lease, the lease will end when title to the property passes. Note that a lease that is recorded prior to the mortgage cannot be affected by the foreclosure. This is a very uncommon occurrence.
Although the issue is not resolved in Colorado, a majority of other states holds that a successor landlord, that is, the new owner of the property who gets title by foreclosure, is generally not responsible for the return of the tenant's security deposit unless the new landlord actually received it from the prior owner. The tenant must look to the original landlord for the return of the security deposit.
Generally, if the landlord files for bankruptcy protection, the lease may be assumed or rejected. The landlord must cure all of its defaults under the lease in order to continue it.