Articles : An Overview: The Protecting Tenants from Foreclosure Act

Foreclosure rates have continued to rise across the country, including rental properties with an active lease agreement in place. To protect tenants from short-notice evictions due to a foreclosure, The Protecting Tenants from Foreclosure Act took effect on May 20, 2009, and will expire on December 31, 2012. The tenant protection provisions apply to any foreclosure/federally related mortgage loan or on any dwelling or residential real property.

Here are some answers, provided by Alisa M. Levin, Esq. to some frequently asked questions regarding the Protecting Tenants from Foreclosure Act.

Is it true that the fundamental provision of the bill requires that most foreclosure purchasers of properties with active leases must give tenants at least 90 days notice before servicing eviction notices and filing for eviction in rent court?
Yes. The Act provides that any immediate successor in interest (meaning the person who owns it after the landlord – the bank or another buyer) must deliver a notice to vacate to any tenant giving 90 days’ notice. The new owner can terminate a lease, or honor it, but if they terminate the lease then they must provide the 90-day notice.

When the lease agreement is signed before the foreclosing loan was originated, i.e. when the loan is younger than the lease, is it true that the lease survives the foreclosure and the foreclosure purchaser must honor the lease until the end of the term?
Not necessarily. The Act does not differentiate between leases that existed before the loan originated and after. The Act provides that the preexisting tenant’s lease must be honored until the end of the term, UNLESS the new owner plans to occupy the property as his/her primary residence, then in that case, the new owner must provide the 90-day notice and the tenant can be ousted. The catch-point in the Act appears to be whether the next owner is a bank or another party intending to use the property as a primary residence. This implies that a tenant in an eviction proceeding MIGHT have a defense; if it can be proven that the successor-in-interest to the mortgagor (landlord) is not a purchaser occupying the property as a primary residence.

What key aspects should landlords be aware of?
Landlords should be aware of the main 90-day notice requirement. If the successor owner is not going to use the property as a primary residence, then the tenant’s lease must be honored. If a landlord is in a short-sale or foreclosure situation and their tenant asks them questions, it’s important not to promise that the tenant can definitely live out their lease term. The landlord should decline to answer those questions specifically and should state that there may be a situation where the tenant has to leave, but in no case will the tenant be asked to leave without notice.

Does the new eviction notice requirements under the Act exclude certain rental situations?
Yes, it appears to exclude situations where the landlord/tenant relationship is between family members or relatives or where the rent is substantially lower than market value for the property (which is likely evaluated on a case-by-case basis).

It remains to be seen whether the bill has any impact on home values, due to buyers factoring in the additional cost burden of purchasing foreclosures with active lease agreement contracts, but time will tell. Whether you're a landlord or tenant, it's important to be aware of this new bill and what you can expect from it.

The Protecting Tenants from Foreclosure Act is a federal law. We advise verifying your states regulations with regards to this subject matter.