As a part of the new financial overhaul law enacted this week (aka Dodd-Frank Wall Street Reform and Consumer Protection Act) there were a few little acorns tucked away in the 848 pages of the act. One of them extended the Protecting Tenants at Foreclosure Act (PTFA) – instead of it vanishing at the end of 2012, it now is alive until the end of 2014. See Section 1484 of H.R. 4173 at page 829. For more on the law go here.
This extension is a big deal for tenants of foreclosed properties. Thus far the industry and its vendors have ignored the Act (it became effective May 2009) because they would much rather evict everyone in the home and sell it vacant. Article here. The industry has stalled in implementing the Act and misled the public and tenants regarding the requirements of the Act. Article here. It might have been because the law sunseted at the end of 2012 and they thought by the time there were enough lawsuits, media stories and complaints to force the industry to comply, the law would be gone. Not any more.
Unfortunately the Federal Housing Administration (FHA), an agency of HUD, is not unlike the industry. Just like entities run by the feds, e.g., Fannie Mae story here, FHA has not considered the PTFA to be worthy of compliance when it comes to the implementation of the Neighborhood Stabilization Program (NSP). This program was established to stabilize communities that have suffered from foreclosures and abandonment. See description here. NSP authorizes recipients (states, nonprofits and others) to acquire foreclosed properties and then resell them to qualified buyers. Recipients target certain areas that have concentrations of foreclosures in order to stabilize the rest of the neighborhood using NSP funding.
NSP funds may only be used to purchase foreclosed properties for which PTAF was complied with during the foreclosure. This is important, as reports have shown that PTAF is widely ignored by lenders. Given this requirement, Texas (rightly) requires that lenders certify that they followed PTAF. (Other states have been willing to look the other way on lender PTAF compliance. This ignores the intent of PTAF and NSP rules.) HUD continues to refuse to certify that they follow the law:
“Although some ISIIs [Initial Successor In Interest, i.e. foreclosing lenders] may be willing to certify to compliance with the Act, HUD suggests that it is more appropriate to provide grantees with the necessary information for grantees to make their own compliance determination.” HUD’s April 6, 2010 letter here.
Kevin Jewell, Texas Low Income Housing Information Service, July 21, 2010, article here.
What does this mean? HUD is not willing to certify that it followed federal law — it is king, and what it does is legal. HUD forecloses on properties, and it can take actions to ensure compliance with PTFA to protect tenants from improper eviction. PTFA incidentally is one page long. You would think it could manage to comply with this. HUD obviously is concerned that it is not following the law, and does not want to take actions to correct the problem. So, they are passing the buck by “provid[ing] grantees with the necessary information” and let them decide if the law was followed. Of course HUD and its vendors are in the best position to know whether they evicted a tenant improperly or not after a foreclosure, not some subsequent participant in NSP.
This is what drives people to the tea party movement — when the government creates and enforces laws that it is not willing to follow itself. The result of this arrogance is no big deal – tenant families across the country who had been paying their rent are forced to relocate earlier, often without enough funds for the move, in the middle of a school year, and without having time to save money for deposits.