It has been more than two years and some attorneys for lenders and others are still out there claiming that the Protecting Tenants at Foreclosure Act (PTFA) does not require the purchaser at the foreclosure sale to honor a pre-existing lease of a bonafide tenant. These attorneys are not uninformed — I would argue they hope to change what the public, tenants, judges, tenant advocates, media believe the law requires — in effect blunting it merely by misinformation.
The bad argument goes that PTFA only requires a tenant get 90 days notice to vacate after a foreclosure sale if the lease is “terminable at will under state law”. These folks claim that the state at issue allows a buyer at a foreclosure sale to ignore a pre-existing lease, therefore it is “terminable at will,” and therefore a lease for a fixed term of a year or whatever can still be terminated by the purchaser (often a lender) by merely giving the bonafide tenant 90 days. This argument is sheer lunacy.
The sole purpose of PTFA is to require purchasers at foreclosure sales to honor pre-existing leases of bonafide tenants and thus to trump state law. The exception “terminable at will under state law” refers to tenancies where there is no fixed term and are month to month or week to week. In those cases PTFA mandated that these tenants at least get 90 days notice to vacate.
There are few cases on this point because the law is so obvious and few reputable attorneys have likely wanted to pursue it. But here is one case where the tenant (Joel) tried to argue he had a lease for a fixed term and thus should have gotten more than 90 days notice from the lender who bought the property at the foreclosure sale (HSBC):
The issue is whether the lease is terminable at will, in which case HSBC can end the lease by providing 90 days’ notice to Joel, or whether it is a lease for a fixed term, in which case HSBC will have to let Joel remain in the property until it sells the property to a purchaser who will use it as a primary residence. The fact that HSBC was not a party to the original lease does not mean that it cannot interpret the express language of the contract to derive the parties’ intent. Joel’s argument that the leasing agreement established a lease for a fixed term, rather than a tenancy at will, also fails. By its terms, the lease created a “month-to-month tenancy” that could be terminated by either party with 30 days’ notice. Because Georgia law requires at least 30 days’ notice before terminating a tenancy at will, the lease effectively created a tenancy at will. See O.C.G.A. § 44-7-7. Therefore, under the PTFA, HSBC could terminate the lease after providing 90 days’ notice to Joel.
Joel v. HSBC Bank USA, N.A., 2011 U.S. App. LEXIS 6707 (11th Cir. Ga. Mar. 31, 2011).
Here is another:
[PTFA] specifies that a successor property owner acquires its property interest subject to the right of a bona fide tenant who is “without a lease or a lease terminable at will under state law” to receive “the 90 day notice under subsection (1).” Accordingly, by its express terms, § 702 (a) requires that a successor property owner provide a bona fide month-to-month tenant with a 90-day notice to vacate before terminating the tenancy, and the 90-day period must be completed before the notice’s effective date.
Bank of N.Y. Mellon v. De Meo, 2011 Ariz. App. LEXIS 65, 8-9 (Ariz. Ct. App. May 3, 2011) (emphasis added).
The law itself, the legislative history of the law, and the opinions above make it obvious. PTFA requires purchasers to honor leases of bonafide tenatns (unless they want to occupy it themselves as their primary residence). Yet I continue to hear stories of lender attorneys in eviction cases in the lower courts making the argument that their clients don’t have to honor the lease and some servicers continue to give notice to tenants to be out in 90 days and not mention that they will honor existing leases. Unless the tenant knows the law, they will likely move as demanded by the lender attorneys. In court, unless the tenant is represented or the judge knows the law, some judges might fall for this bogus argument. Regardless, the rhetoric — aka deceptive representation of the law — impacts the knowledge base of the public, even that of real estate attorneys that may be reputable. For example in an ABC New story today:
“In a distressed economy, renters have to be extra cautious they know what they are getting themselves into,” says Singer. If the bank forecloses on the property after a homeowner association foreclosure the renter would only have 90 days to move based on the Protecting Tenants at Foreclosure Act. To keep themselves from falling victim to predators “tenants should do the due diligence” and find out who they are renting from, Singer says.
Gary Singer, Real Estate Attorney, ABC News, July 27, 2011 (story here).
The story discusses what happens after a HOA forecloses for nonpayment of dues — investors buy the property and then rent it out, but don’t pay the underlying mortgage. Then when the bank forecloses the tenants it appears fall victim per the story. This is incorrect information. No problem it is just ABC News. PTFA clearly requires a purchaser at a foreclosure sale to honor all fixed term leases of bonafide tenants (unless the purchaser intends to occupy the property as his primary residence). Mr. Singer might have been misquoted, or might have been talking about tenants obtaining month-to-month leases from investors (but it does not look like it).
Even Fannie Mae, the largest lender in the world now controlled by the federal government dances around the subject in its materials and information it sends to tenants occupying property that has been foreclosed on. It seems to give lip service to the law but clearly intends to deceive:
Fannie Mae’s REO Tenant-in-Place Rental Policy FAQs
Fannie Mae’s rental policy allows renters in Fannie Mae-owned, single-family foreclosed properties the opportunity to stay in their homes by signing a new lease with Fannie Mae or by continuing an existing lease protected under the Protecting Tenants at Foreclosure Act or other applicable law.
Who is affected by the rental policy?
The Tenant-in-Place rental policy applies to qualified renters occupying a Fannie Mae-owned home at the time of foreclosure. Mortgagors may also have the opportunity to rent through Fannie Mae’s Deed-for-Lease program (more information on this program is available at http://www.fanniemae.com). Renters occupying any type of single-family property may be eligible. This includes residents of two- to fourunit properties, condominiums, co-ops, single-family detached homes and manufactured housing. The policy applies to all renter-occupied single-family Fannie Mae-owned properties. Approval from the Department of Housing and Urban Development will be required on properties where the loans were insured by FHA.
Notice that Fannie Mae says nothing about the law requiring it to honor existing leases — Fannie merely states that they have a policy with requirements. It is true that a tenant must be bonafide before PTFA applies — but that merely means that the lease is legitimate (not between family, for market rent, etc.). Fannie clearly is trying to hide the ball from renters so that they will not realize that they have rights under PTFA. Fannie then completely states a complete falsehood — that FHA must give approval before it has to honor a pre-existing lease.
I’m sure if I kept digging I could find more examples all over the place. My point is we must diligently defend tenants’ rights under PTFA from attacks from all sources — if nobody corrects the media, servicers, GSEs and others then in the end the law has been eviscerated and the lenders will have once again weaseled their way out of another federal law.
Note: Another lender attorney argument is that while PTFA requires an actual notice to vacate of 90 days to be sent to people with month-to-month leases, lenders merely have to wait 90 days before starting eviction proceedings and never have to give the notice. This argument is consistent with the audacity of the one above and lenders’ view of federal laws in general as opposed to federal bailouts. This notice-not-required argument has also failed when it reached at least one appellate court. Bank of N.Y. Mellon v. De Meo, 2011 Ariz. App. LEXIS 65 (Ariz. Ct. App. May 3, 2011).
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