Tips for Tenants in Foreclosed Properties
To think that foreclosure can only affect homeowners is a misconception. Renters can be and are affected by foreclosures, too. This happens when owners of rental buildings fail to get enough rent to cover their costs. It could be because the number of rentals in their building has decreased or because renters in the building have fallen on hard times, too, and they can’t make the rent. Either way, property owners are forced into foreclosure, which puts renters in jeopardy, too.
As a result, Congress passed the Protecting Tenants at Foreclosure Act of 2009, during the height of the Great Recession. It is part of the Helping Families Save Their Homes Act of 2009. While the Protecting Tenants at Foreclosure Act of 2009 was originally set to expire on Dec. 31, 2012, it was extended to Dec. 31, 2014 by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Who is protected by this Act? It applies to tenants of any one-to-four-family residential property upon which there is a federally related mortgage loan (such as a Federal Housing Administration loan or a Veterans Affairs loan), or any dwelling or residential real property, and any person or entity that takes ownership of the property through foreclosure, such as the lender or the winning foreclosure bidder.
The Protecting Tenants at Foreclosure Act of 2009 affects states offering either no or fewer tenant protections to its residents than the protections provided by the Protecting Tenants at Foreclosure Act of 2009, but not those states in which state or local laws offer more protection to tenants of foreclosed properties than the Protecting Tenants at Foreclosure Act of 2009. State or local laws also still apply to situations not specifically mentioned in this Act.
The following are the major protections given by the Protecting Tenants at Foreclosure Act of 2009:
- The purchaser of a foreclosed home must give tenants at least 90 days’ notice prior to eviction.
- The purchaser must also allow tenants to remain in the foreclosed home until the end of the lease, except in the following cases:
- The foreclosed home has been sold to someone who plans to make it his primary residence; or
- There is no lease or the lease can be terminated at will if state law allows.
- Even under these circumstances, the new owner must still provide tenants 90 days’ notice of eviction.
The Protecting Tenants at Foreclosure Act of 2009 applies only to tenants under a “bona fide” (that is, genuine, or real, or in good faith) lease or tenancy. A lease or tenancy is “bona fide” if:
- The tenant is not the foreclosed homeowner or a child, spouse or parent of the foreclosed homeowner;
- The lease or tenancy came about by arm’s-length transaction (a transaction between independent parties who have no relationship to each other, whether business or otherwise); and
- The rent is not substantially less than fair market rent for that type of property or the rent has not been reduced or subsidized by federal, state or local subsidy.
The best thing for you to do if the property you reside in has been foreclosed on is to consult a foreclosure specialist, who can explain all your options and advise you on the best course of action for your particular situation.