Protecting Tenants at Foreclosure Act

Given the current real estate market, a real concern among renters is what will happen to them if their landlord stops paying the mortgage and a foreclosure action is filed.  In 2009, a new law was enacted to protect tenants of foreclosed property, such that they may not be immediately evicted upon sale of the property after foreclosure without notice.

The Protecting Tenants at Foreclosure Act of 2009 (the “Act”) states as follows:

SEC. 702. EFFECT OF FORECLOSURE ON PREEXISTING TENANCY.

(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.

(c) DEFINITION. For purposes of this section, the term ‘‘federally-related mortgage loan’’ has the same meaning as in section 3 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2602).

SEC. 703. EFFECT OF FORECLOSURE ON SECTION 8 TENANCIES.

Section 8(o)(7) of the United States Housing Act of 1937 (42 U.S.C. 1437 f(o)(7)) is amended –

(1) by inserting before the semicolon in subparagraph (C) the following: “and in the case of an owner who is an immediate successor in interest pursuant to foreclosure during the term of the lease vacating the property prior to sale shall not constitute other good cause, except that the owner may terminate the tenancy effective on the date of transfer of the unit to the owner if the owner –

(i) will occupy the unit as a primary residence; and

(ii) has provided the tenant a notice to vacate at least 90 days before the effective date of such notice.”; and

(2) by inserting at the end of subparagraph (F) the following: “In the case of any foreclosure on any federally-related mortgage loan (as that term is defined in section 3 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2602)) or on any residential real property in which a recipient of assistance under this subsection resides, the immediate successor in interest in such property pursuant to the foreclosure shall assume such interest subject to the lease between the prior owner and the tenant and to the housing assistance payments contract between the prior owner and the public housing agency for the occupied unit, except that this provision and the provisions related to foreclosure in subparagraph (C) shall not shall not affect any State or local law that provides longer time periods or other additional protections for tenants.”

Essentially, the Act requires written notice to every tenant occupying real property that is foreclosed upon and, in Florida, sold at judicial sale to a successor in interest.  The duration a tenant may remain in the property post-sale depends upon the type of rental agreement, if any.  A bona fide tenant may remain in the property until the end of the lease term, unless the successor in interest intends to occupy the property as his/her primary residence, which limits the term to 90-days after receipt of the notice.  If there is no written lease agreement or the agreement is terminable at will, the tenant must vacate no later than 90 days after receipt of the notice.  Take note that there are special considerations for Section 8 housing, which will not be discussed in detail in this article.

Under Florida law, a lease is terminable at will if it is not reduced to a writing signed by the lessor, i.e. an oral lease agreement.  Fla. Stat. § 83.01.  Further, a written lease may also be terminable at will if it fails to prescribe an end date for the agreement.  Fla. Stat. § 83.02.  These two types of “terminable at will” lease agreements will require a tenant to vacate the premises no later than 90 days after receipt of the required notice under the Act.  The Act also defines “bona fide lease” and any such lease agreement which does not fall under that definition is not subject to the protections of the Act.

It is important to note the provisions of this rather recent legislation if you are a successor in interest at foreclosure.  Failure to properly notice a tenant could mean a loss when attempting to evict a tenant that refuses to leave the premises or a significant delay in obtaining access to the property.