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Renters, Short Sales and Evictions

Posted by attorney James Schroeder

Renters and Short Sales

I recently received a call from a real estate agent who was working on a short sale and frantically explained that the seller forgot to tell her there was a renter in the house. She found herself with 30 days to close the deal and the renter had a lease with eight months left on it. She asked if she could force them to vacate the property.

This example highlights one of the most important issues for a seller, full disclosure. A “small issue" is not a small issue when it comes to short sales and deed in lieu.

The answer to the question is generally no, you cannot evict a tenant from a property that is being sold through a short sale if they have a valid lease.

In 2009 the federal government enacted legislation titled the “Protecting Tenants at Foreclosure Act". This act supersedes all state law on the matter, unless the state has more expansive protections than those afforded under the federal law.

The Act permits long-term tenants to remain in the property through the end of the lease. The current owner and prospective owner must honor the terms of the lease agreement. The new owner cannot raise the rent. If the lease has six months left, the tenant can stay six months.

There is one exception; if the new owners plan to use the property as their primary residence the tenants must be afforded 90 days notice. If the lease is for seven months and the new owner is going to be buying the house to move in they can petition the landlord tenant court to evict 90 days after notice.

For month-to-month tenants the Act requires a minimum of 90 days notice to legally evict.

The act has a sunset provision of December 31, 2014. If the Act is not extended the authority over this area of the law will likely revert to whatever laws the states have on the books.

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