UPDATE - SEE CRITICAL 2013 UPDATE ON THIS LAW AT: http://activerain.com/blogsview/4199826/grand-canyon-loophole-for-tenants-landlords-in-foreclosure
In March I wrote about the problems tenants faced when the landlord was in foreclosure. See TENANT RIGHTS AND FORECLOSURE - A DISCUSSION OF SAFEGUARDS. Some, but not all, issues have been addressed in new legislation that went into effect May 20, 2009 called the Protecting Tenants at Foreclosure Act of 2009 (note: it is Title VII in this link). There is still the advance rent and security deposit issue as the ACT does not address how the tenant can protect itself from the loss of those monies.
New new Act is very broad and effectively covers every residential mortgage in every state. It does NOT apply to tenancies that are not "bona fide" - and that definition is also very broad. For example, if you are in foreclosure and the tenant is your child, the Act will NOT apply.
The key is when was the lease entered into - was it before or was it after the foreclosure was filed? If it was before the lease was signed, then it takes precedence over the mortgage foreclosure and the tenant cannot be evicted because fo the foreclosure - provided the tenant does not breach the lease. The ONLY exception is if the buyer is purchasing the property as its PRIMARY RESIDENCE, in which event the 90 days.
If the lease was after the foreclosure, then the tenant can be evicted 90 days after notice to vacate is given by the NEW owner after the foreclosure sale. In essence, any lender must give any bona fide tenant 90 days to vacate the premises AFTER the lender or any other buyer at a foreclosure sale acquires title to the property. Of course some state tenant laws still apply, for example, if the prior Landlord (the foreclosed owner) had given a notice to vacate prior to the foreclosure sale occuring (because of a tenant breach) in which event that notice start date would remain applicable.
The HUD explanation is simple regarding the notice to vacate:
(1) The advance notice applies to tenants in any foreclosed dwelling or residential real property, regardless of the type of loan or other security interest on the property.
(2) An advance notice of 90 days is the minimum period of notification. A longer period may be provided, for example, if greater protections are provided by state or local law.
(3) Responsibility for providing the advance notice to tenants falls on the immediate successor in interest of the property, which will generally be the purchaser.
(4) The notice must be given to anyone who, as of the date of the notice of foreclosure, is a bona fide tenant, whether or not there is a lease.
A detailed analysis of the Act is found at: PROTECTING TENANTS AT FORECLOSURE: NOTICE OF RESPONSIBILITIES PLACED ON IMMEDIATE SUCCESSORS IN INTEREST PURSUANT TO FORECLOSURE OF RESIDENTIAL PROPERTY.
Remember that during the remaining term of the lease or the 90 days notice period, the terms of the lease still apply - the tenant obligations to maintain the premises, pay rent, etc. must still be adhered to by the tenant or they can be sued and evicted by the new owner! This new law is NOT a free ticket for tenants!!!!
It is important to recognize that the new law is only a starting point - STATE LAWS that provide greater protections are still in place and will override the new federal law. I would also note that if the lease term was finished before or during the 90 day period, the lease term is NOT extended by this law and normal state remedies for holdover tenancy would be in effect.
MISSING SECURITY AND ADVANCE RENT PROTECTION FOR TENANTS -
The ACT does not provide any monetary protections that I spoke about in my previous article and therefore the game plan in that article still applies. The problem is that most tenants gave to the original landlord last month's rent and a security deposit. The new owner has no responsibility to the tenant for those monies!! So what to do - see my suggestions in TENANT RIGHTS AND FORECLOSURE - A DISCUSSION OF SAFEGUARDS.
There can be other more imaginative ways to proceed - but remember that because the old landlord that lost the house isn't the owner anymore does not mean that you get a free 90 day pass to live in the house (althought that is how it is likely to pan out for new owners). The new owner can sue the tenant for unpaid rent for the 90 days. That leaves the tenant in a conumdrum of how to recover the deposit and advance rent and that is why participation in the foreclosure suit with a request to the court to deposit monies to the court registry is going to be the best legal route a tenant can take to demand and get fair treatment regarding its financial obligations. My suggestion is to get involved as a tenant in the foreclosure suit when served with the foreclosure summons and complaint. You may want to seek the advice of an attorney in your State when doing so.
Copyright 2009 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, PHONE 561 689 6660 RPZ99@Florida-Counsel.com - 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! Shortsales@Florida-Counsel.com New Website www.Florida-Counsel.com. See our easy to find articles at TABLE OF CONTENTS - SHORT SALE AND LOAN MODIFICATION ARTICLES.
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