New law offers further protections to tenants of foreclosed properties

June 14, 7:35 PMSF Real Estate ExaminerCece Blase

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Effective immediately, under the recently passed Protecting Tenants at Foreclosure Act of 2009, an REO lender or other buyer who acquires title through a foreclosure is required to:

1. Provide “bona fide” tenants with 90 days’ notice prior to eviction; and,
                        
2. Allow “bona fide” tenants with leases to occupy the property until the end of the lease term. However, the lease can be terminated on 90 days’ notice if the unit is sold to a buyer who will occupy the property.
 
BONA FIDE LEASE OR TENANCY: A “bona fide” lease or tenancy is one where:
 
A. The tenant is not the mortgagor or a member of the mortgagor’s family (that is, not the former owner who was the borrower on the foreclosed note, or that person’s family members);
 
B. The lease or tenancy is the result of an arms length transaction (for example, is not a “sweetheart” lease at a low rent to a friend or relative); and,
 
C. The lease or tenancy is not substantially lower than fair market rent, or is reduced or subsidized, due to a Federal, State or local subsidy.
 
SOME DETAILS:
 
1. Section 8 tenants: Because the new owner at foreclosure must accept both the tenant's lease and the housing assistance payment (HAP) contract, these tenants are protected.
 
2. This new requirement applies only to foreclosures of a federally-related mortgage loan or residential real property.
 
3. Local rent control laws, and other state or local laws which provide additional protections to tenants, shall continue to apply.
 
4. Tenants must still comply with all rental or lease terms. A tenant who fails to pay rent, or otherwise fails to comply with the lease or tenancy terms, can still be evicted within the 90 days or the remaining lease period.
 
5. The law is scheduled to expire on December 31, 2012.