Judging from the questions in the Landlord-Tenant section of AVVO Answers, there are a great number of tenants being displaced by mortgage foreclosures on the residential properties they rent. Moreover, the attorneys who are answering the questions seem to be unaware of a federal statute on point, the “Protecting Tenants at Foreclosure Act of 2009.” This statute, effective last Spring, permits most residential tenants of foreclosed properties to stay for at least 90 days and perhaps until the end of the lease term. The full text of this statute appears at the end of this Legal Guide.
The key provisions of this statute are:
• When a foreclosure occurs in a federally-related mortgage (almost all bank mortgages are) on a dwelling or residential property, the new owner must give the tenant a notice providing at least 90 days to vacate.
• However, any tenant with a bona-fide lease (defined below) has the right to remain until the end of the lease term, except that a new owner may terminate the lease by 90-day notice on the date of sale to a person who will personally occupy the premises as a residence.
• With no lease, or a lease terminable at will, the new owner must give 90 days' notice.
• A "bona-fide lease" doesn't include a lease with a close relative of the landlord or a lease that has rent below market value.
• These provisions apply to Section 8 rentals also.
• The statute expires on December 31, 2012 unless extended by Congress.
• COMMENT: Lawyers representing foreclosure purchasers are often ignoring the statute and demanding immediate occupancy without regard to existing leases or whether the property has yet been sold to a prospective owner-occupant. If the demands are not heeded, they usually commence some kind of legal action. You will probably need a lawyer to assert your rights, especially if legal action has been commenced to evict you. The attorneys who handle foreclosures pay little or no attention to communications from non-lawyers and the best way to get their attention is by presenting a motion or petition in court. Although you could theoretically do this yourself, the motion will be much more effective if drafted and presented by an attorney.
On Rent: Tenants often ask whether they have to pay the lender rent, before or after the foreclosure. The answer is a qualified yes. The lender probably obtained an "Assignment of Rents" from your landlord at closing. It stated that if the landlord became delinquent on the mortgage payments, the lender could collect the rent and apply it to the mortgage. If contacted by a lender before a sheriff (trustee) sale occurs, ask for a copy of the Assignment of Rents and a letter confirming that the conditions for collection of rent by the lender have been met and the rent will be applied to the mortgage balance. If the lender has foreclosed, ask for proof, such as a copy of the Sheriff's (Trustee's) Deed. If you are still unsure whether to pay rent to the lender, hire an attorney. Although the "Protecting Tenants at Foreclosure Act of 2009" does not say that you have to pay rent to stay to the end of the lease, you will probably face an eviction action if you don't. So long as you can be assured that you are not obligated to pay the landlord too, I suggest you make a written agreement with the foreclosing lender whereby it adopts and confirms the lease and you pay rent.
Public Law 111-22, Effective Date May 20, 2009
TITLE VII–PROTECTING TENANTS AT FORECLOSURE ACT
SEC. 701. SHORT TITLE.
This title may be cited as the `Protecting Tenants at Foreclosure Act of 2009′.
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. 1437f(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.
SEC. 704. SUNSET.
This title, and any amendments made by this title are repealed, and the requirements under this title shall terminate, on December 31, 2012.