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Protecting Tenants in Foreclosure

         A federal law to protect renters was recently passed by Congress and signed into law by President Obama.  The Protecting Tenants at Foreclosure Act of 2009 became law on May 20, 2009.  The new tenants’ protection law creates unprecedented federal protections for tenants. 

            The Act protects tenants under any lease of a residence in existence at the time of the law’s enactment, whether or not there was a previous federal connection to or regulation of the property.  The law was passed as a response to the plight of tens of thousands of tenants who continued to pay their rent to a landlord who was not making mortgage payments.  Often, most tenants are unaware of a possibility of foreclosure until receiving a Notice of Eviction.  In Nevada, tenants were only provided with three days to vacate the property.  The Act provides limited protections to tenants in the face of foreclosure.  

            Under the Act, a successor-in-interest to the mortgagor may not consider the lease to be a non-binding obligation between third parties.  The successor-in-interest assumes its interest in the former-landlord’s property subject to the obligation to comply with the new procedures created under the law, which recognizes continuing obligations springing from the lease.  New procedures are designed to stop the successor-in-interest from employing summary eviction to force a renter to move out.  The Act was part of the larger Helping Families Save Their Home Act, and can be found in Title VII of Public Law 111-22. 

FAQs:

            What rental or lease agreements does the new law apply to?  The Act protects tenants who are renting a home if that home goes into foreclosure proceedings.  The Act applies to leases and rental agreements.  The law does not protect a renter for evictions “for cause”.  That means the State still controls cases of a renters who are non-current on their rent payments or facing eviction for other violations. 

            How do I know if I’m protected?  The law applies “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 law.  So any renter or tenant of a dwelling or residential real property is protected if eviction or vacation proceedings or actions begin because the property goes into foreclosure. 

            What does “bona fide” tenant mean?  The Act defines a bona fide tenant as a tenant or renter that has a lease that meets three requirements:

          1.  the person who has the loan or mortgage on the property is not the tenant, or his or her child, spouse, or parent 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.

            Is a “tenant” the same as a “renter?”  Yes. 

            How does the new law work?  After a home goes into the foreclosure process, the successor-in-interest (whoever becomes the owner of the mortgage note or property), will be the landlord.  The landlord becomes obligated to follow the law that protects the tenant.  If you are a “bona fide” renter, your landlord must: 

            1.  provide you Notice to Vacate at least 90 days before the effective date of such notice; and 

            2.  also describe in the Notice to Vacate the rights of any bona fide tenant under the law. 

             What are my rights under the new law?  There are several protections in the law for tenants, but not all protections will apply equally to everyone.  

            1.  If a bona fide tenant has a lease or rental agreement, the renter has the right to remain in the property until the lease agreement expires.  The new Landlord is not allowed to ignore the existing Lease Agreement of the renter.  So a bona fide tenant may remain in the property until the lease expires.  However, there are some exceptions to this right:  

                        (a)  if the owner sells the house to a buyer who is going to move into the house to live there as the primary residence, then the tenant must move out within ninety (90) days after the Notice to Vacate is received; and 

                        (b) if a tenant does not have a lease, or if State law allows a lease to be terminated “at will,” then the tenant is protected for ninety (90) days.  The Landlord must first provide written Notice to Vacate in compliance with this law and the tenant must then move out within ninety days after the Notice is received.  

            2.  If a tenant is renting federal property and the rules provide more protection than the Act, or if a tenant’s State Law provide more protections, then the more protective rules apply.

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