The Protecting Tenants at Foreclosure Act of 2009 clearly stated that any lease entered into AFTER the notice of foreclosure did not have the protection of the Act to allow the full lease term to run. But the Dodd-Frank Wall Street Reform and Consumer Act opened up the Grand Canyon of income generation loopholes for Landlords and some greater safety for Tenants involved in a foreclosure!
I talked about the Protecting Tenants at Foreclosure Act of 2009 in my article Tenant Eviction Law and Foreclosure Problems back in 2009. The most important portion of understanding that law for tenants and landlords was whether a tenant was covered under the timing provision of when the lease was entered into with the owner who was in foreclosure. It was that the lease had to be entered into before the “notice of foreclosure" – an event commonly interpreted as when the foreclosure complaint was filed in the court (the lis pendens as some call it).
Dodd Frank Act -
The Dodd-Frank Act at Section 1484 changed that definition dramatically – effectively allowing any owner (landlord or potential landlord) to rent out their home to a bona fide renter at a market rent AT ANY TIME PRIOR TO THE ISSUANCE OF THE FORECLOSURE TITLE TO THE LENDER OR THIRD PARTY PURCHASER AT THE FORECLOSURE SALE OR TRANSFER, and that tenant’s lease will be honored for its full (but reasonable) term. The proviso that the buyer at the foreclosure sale can evict the longer term tenant in 90 days still exists, provided that buyer who will occupy the property as a primary residence or when there is no lease or the lease is terminable at will under state law. Anyone else, including the lender, must wait until the lease term expires.
How The Law Was Amended -
Section 1484 states: The Protecting Tenants at Foreclosure Act is amended—
(1) in section 702 (12 U.S.C. 5220 note)—
(A) in subsection (a)(2), by striking ‘‘, as of the date of such notice of foreclosure’’; and
(B) in subsection (c), by inserting after the period the following: ‘‘For purposes of this section, the date of a notice of foreclosure shall be deemed to be the date on which complete title to a property is transferred to a successor
entity or person as a result of an order of a court or pursuant to provisions in a mortgage, deed of trust, or security deed.’’; and
(2) in section 704 (12 U.S.C. 5201 note), by striking ‘‘2012’’ and inserting ‘‘2014’’.
Impact on Tenants and Landlords in Foreclosure -
So what does this mean? Before, if you were in foreclosure and you wanted to rent, you had to advise the prospective tenant of the pending foreclosure and that they would definitely have to be out on 90 days’ notice once the foreclosure sale was complete. That has not changed as a matter of disclosure, as the same rule pertains to buyers at a foreclosure sale that were buying for use as their primary. But before, if the lease were written after the foreclosure suit was filed, only the 90 day rule was in effect. Now, REGARDLESS OF WHEN THE LEASE IS WRITTEN, if the buyer is not buying for primary home purposes, the full term of the lease must be honored. Since most foreclosure sales end up with the lender or investors that are not buying for their own primary residence, this encompasses the majority of foreclosure sales.
New Pool of Rentals – Rental Income and Commission Source?
I love being an attorney – every day is an opportunity to learn, and this Grand Canyon of loopholes is one of those examples.
This therefore opens up a huge inventory of homes that were thought to be unable to be rented because of already filed foreclosure suits. Very few investors and brokers are aware of this potential income and commission source. Realtors should be aware of these additional options available to their clients and it applies nationwide.
© 2013 Richard P Zaretsky, Esq.
Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make. This article is for information purposes and is not specific advice to any one reader.
Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE561 689 6660 [email protected]- FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide! [email protected]New Website www.Florida-Counsel.com.
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