The Protecting Tenants at Foreclosure Act of 2009

The Protecting Tenants at Foreclosure Act of 2009

The Protecting Tenants at Foreclosure Act of 2009

With the bursting of the housing bubble, many properties have gone into foreclosure all over the United States.  And many tenants have been shocked to discover that the property they have been renting and living in has been foreclosed on and they are expected to move out very quickly. The general rule in many states, including California was that after the foreclosure sale any lease entered into between the previous owner and another person was extinguished.  Eviction proceedings could be commenced very soon after the foreclosure sale.

However, a new federal law took effect recently that has changed all of that. Tenants who signed a lease with the previous owner of a property that has been foreclosed on now have the right under this new law in most cases to remain in the property until the remaining term of their lease.  And even tenants who do not have a lease with the previous owner are still entitled to a 90 day notice to vacate if they are considered a bona-fide tenant under the law.

The new law is called the Protecting Tenants at Foreclosure Act of 2009, Public Law 111-22, Title VII signed by President Barack Obama and effective May 20, 2009, and titled The Protecting Tenants at Foreclosure Act of 2009, Section 702 states that,

“(a) In General- In the case of any foreclosure on a federally-related mortgage loan or on any dwelling or residential real property after the date of enactment of this title, any immediate successor in interest in such property pursuant to the foreclosure shall assume such interest subject to–
(1) the provision, by such successor in interest of a notice to vacate to any bona fide tenant at least 90 days before the effective date of such notice; and
(2) the rights of any bona fide tenant, as of the date of such notice of foreclosure–
(A) under any bona fide lease entered into before the notice of foreclosure to occupy the premises until the end of the remaining term of the lease, except that a successor in interest may terminate a lease effective on the date of sale of the unit to a purchaser who will occupy the unit as a primary residence, subject to the receipt by the tenant of the 90 day notice under paragraph (1); or (B) without a lease or with a lease terminable at will under State law, subject to the receipt by the tenant of the 90 day notice under subsection (1), except that nothing under this section shall affect the requirements for termination of any Federal- or State-subsidized tenancy or of any State or local law that provides longer time periods or other additional protections for tenants.

(b) BONA FIDE LEASE OR TENANCY.—For purposes of this section, a lease or tenancy shall be considered bona fide only if— (1) the mortgagor or the child, spouse, or parent of the mortgagor under the contract is not the tenant; (2) the lease or tenancy was the result of an arms-length transaction; and (3) the lease or tenancy requires the receipt of rent that is not substantially less than fair market rent for the property or the unit’s rent is reduced or subsidized due to a Federal, State, or local subsidy.”

Thus a tenant who entered into a lease with the previous owner before the notice of foreclosure has the right to remain until the end of their lease. The only exception is if the purchaser at the foreclosure sale intends to occupy the property as a primary residence, and even then a 90-day notice must be given.  And if a State or local law provides for a longer notice period then the tenant is entitled to the longer notice period.

However, the law provides a tenant must meet certain conditions to be considered a bona-fide tenant.  For instance, neither the previous owner or his spouse or child are bona-fide tenants, the lease must be the result of an arms-length transaction, and the rental amount must not be substantially less than fair mark rent for the property, unless the rent is reduced or subsidized due to a Federal, State or local subsidy.

UPDATE:

The provisions have now been extended until December 31, 2014.  See below.

Section 1484 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111-203, approved July 21, 2010) amended PTFA, and extended the PTFA protections to December 31, 2014. Section 1484 of the Dodd-Frank Wall Street Reform and Consumer Protection Act also defined when “date of notice of foreclosure” occurs. Section 1484 provides in relevant part as follows: “the date of a notice of foreclosure shall be deemed to be the date on which complete title to a property is transferred to a successor entity or person as a result of an order of a court or pursuant to provisions in a mortgage, deed of trust, or security deed.

This new law provides a powerful tool for tenants caught up in the foreclosure crisis.  It allows them time to find another suitable place to live. And since Federal law supersedes State law no State Court can enter a Judgment in violation of Federal law.

In fact the author very recently prepared an ex-parte application for a Southern California law firm on behalf of their clients, a couple who were scheduled to be evicted on a Friday, the ex-parte application was presented to a California judge on Thursday afternoon, the day before the scheduled lockout.  The ex-parte application cited The Protecting Tenants at Foreclosure Act of 2009 and its provisions.  The ex-parte application was approved and the eviction was canceled.

 

The author of this article, Stan Burman, is a freelance paralegal with over 15 years of experience in civil litigation in California Courts.  Mr. Burman may be contacted by e-mail at DivParalgl@yahoo.com for more information.

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