Update of July 23, 2010: PTFA was extended through the end of 2014. See story here.
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The Protecting Tenants at Foreclosure Act, PL 111-22 became effective May 20, 2009. It applies to foreclosures through December 2012 when the law sunsets. For full text of the federal law see S. 896, pp 29-31.
The days of tenants getting 30 or 60 days notice to vacate after a foreclosure sale are gone for awhile. See for example Tex. Prop. Code § 24.005(b), or the recent pathetic California law here. The new federal law enables a bona fide tenant (defined in the Act) who is leasing premises that are foreclosed upon to continue occupancy through the FULL TERM of the lease unless the new owner intends to use the property as his primary residence (in which case the new owner still must give the tenant 90 days notice to vacate). If the lease has expired or is month-to-month, the tenant is still entitled to a 90 day notice to vacate. If the lease will expire soon after the foreclosure, the tenant still is entitled to a 90 day notice to vacate. (These notice periods begin when the notice is provided by the new owner, not from the date of the foreclosure.) The tenant still has to abide by the terms of the lease and pay rent, and the new owner (the buyer at the foreclosure sale which is often a lender) has to abide by the lease and other applicable law. Note the Act applies to foreclosures of all residential property not just federally related mortgage loans or single family properties. Tenants of multifamily property, condos, even those renting a mobile home (where it was attached to real estate and sold at a foreclosure sale) are all protected by the Act.
The Act also applies to Section 8 voucher housing and states that a foreclosure does not constitute “other good cause” for termination of an existing Section 8 lease (except if the new owner intends to occupy the property as his primary residence). The Act states that the new owner assumes both the lease and the housing assistance payments contract. Although more guidance may be coming from HUD, the Act is self-implementing. Per a letter from one HUD Director dated June 15, 2009 (New England PIH Advisory Letter #09 02), the change in the law affects all Section 8 tenants, even those living in units that have been foreclosed upon prior to the effective date of the Act.
It will undoubtedly take time before foreclosure attorneys, lenders, and judges become familiar with this new law so advocates and legal aid offices should be prepared to explain it for some time to come. Tenants also will not be familiar with the law, and if a tenant fails to pay rent to the new owner, then the same termination and eviction laws apply. Tenants may also find themselves being offered cash to leave voluntarily (“cash for keys”), if other methods, deceptive and otherwise, prove ineffective.
Finally, the Act grants tenants a “right” not an obligation to continue the lease. Barring unique facts including different language in the security instrument or special laws in the applicable state, the new owner and the tenant are allowed to continue the lease by consent — nothing usually requires either to continue the lease. Thus, before the tenant can be bound to the lease with the new owner, the tenant must expressly or impliedly affirm the lease. Thus, tenants who do not wish to continue the lease agreement with the new owner should think twice before continuing to pay rent without seeking the advice of counsel; otherwise, they may be deemed to have continued the lease agreement. Of course some tenants learning of a foreclosure will have more than likely refused to pay rent to anyone and vacated the premises which clearly avoids any possible chance of affirmation (and obligation to lease). Then the fight over security deposits, damaged carpet and credit reports will go forward as per usual. I look forward to the day when deposits are escrowed in every state rather than spent, interest is paid back to tenants, and tenants have the right to place something on the landlord’s credit report. But until then, this new federal law is quite an improvement. Hopefully it will not sunset.
Filed under: National Foreclosure News
So my understanding of this is-the now bank owned property can be put on the market, even those there are people with a viable lease, that runs through July 2011, in the home? My daughter is in this situation and is trying to buy the house, but now she has people stopping by to look at the property every day; has she no rights under this new act, to privacy and just to live her life.