FORECLOSURE TIPS: OVERVIEW OF TENANTS RIGHTS FOLLOWING EVICTION (NEW HOPE FOR MODIFYING INVESTMENT PROPERTIES?)
Hi again, we have posted information on previous blogs about tenants rights following eviction. Here is an overview of what we are looking at. The following is general legal information only and is not legal advice, or to be construed as legal advice. For specific questions please contact a real estate or foreclosure defense Attorney. Steve Vondran, Esq. practices law in the areas of Real Estate, Bankruptcy, and Foreclosure Defense. He assists homeowners in California and Arizona where he is licensed to practice law. He also holds a real estate broker's license in both states. He can be emailed at Steve@VondranLaw.com or called at (877) 276-5084.
•(1) IF YOU HAVE A FANNIE MAE LOAN THAT IS BEING THREATENED WITH FORECLOSED, FANNIE MAE, THROUGH THE LOAN SERVICER, MAY ACCEPT A DEED IN LIEU OF FORECLOSURE AND ALLOW A "DEED FOR LEASE" PROGRAM THAT ALLOWS UP TO A ONE YEAR LEASE AND POSSIBLE EXTENSIONS TO THE HOMEOWNER.
Here were some of the General Guidelines we discussed:
GENERAL GUIDELINES FOR FANNIE MAE DEED FOR LEASE RENT-BACK PROGRAM:
•(1) The loan must be owned by Fannie Mae (use their website here to see if your Loan is owned by Fannie): http://loanlookup.fanniemae.com/loanlookup/
•(2) Contact your loan servicer and see if you are eligible for the program and eligible to execute a "deed-in-lieu" of foreclosure (this means you sign over the deed to the loan holder in lieu of being foreclosed on). The owner of the loan, through the loan servicer, must agree to accept the deed-in-lieu of foreclosure. This is a requirement of the program. In some cases, you may only qualify for Deed in Lieu if you only have a first mortgage. In other instances, you may qualify if the second mortgagee releases your lien.
•(3) The property must be primary residence / owner occupied (landlord-owner may qualify if tenant uses property as primary residence).
•(4) Borrower must be able to pay market rent for the lease (which is a one year lease and option to extend by term or month-to -month). A property management company will determine market rate.
•(5) Rent payment cannot exceed 31% of Gross Monthly Income (yes, you will be required to submit financials).
•(6) Borrower cannot have had more than 12 late payment s on loan and cannot be in Bankruptcy.
•(7) FHA and VA loans do NOT qualify.
•(8) Borrower must have made at least three payments on loan.
•(9) House remains for sale and any new owner of the home would take "subject to" the lease.
A link to that blog post can be found here: http://activerain.com/blogsview/1340634/do-tenants-in-california-have-any-rights-if-the-house-they-live-in-is-foreclosed-
•(2) FREDDIE MAC HAS A SIMILAR LEASE-BACK PROGRAM (CALLED THE REO RENTAL INITIATIVE) BUT IT DOES NOT INVLOVE THE DEED IN LIEU OF FORECLOSURE. ONCE THE FREDDIE LOAN IS FORECLOSED ON, THE LOAN SERVER MAY GRANT THE HOMEOWNER, OR REMAINING TENANT OF A RESIDENTIAL INVESTMENT PROPERTY TO STAY OVER ON A MONTH TO MONTH BASIS.
The Property must be in habitable condition, and the tenant must be able to afford the rent. Here is a link to the Freddie Mac press release discussing the REO Rental Initiative Program: http://www.freddiemac.com/news/archives/servicing/2009/20090305_reo-rental-initiative.html
•(3) UNDER THE HELPING FAMILIES SAVE THEIR HOMES ACT OF 2009, PURSUANT TO THE PROTECTING TENANTS AT FORECLOSURE ACT OF 2009, ANY BONA FIDE LEASE HOLDER MUST BE GIVEN AT LEAST 90 DAYS NOTICE BEFORE THEY C AN BE EVICTED.
Here is a look at the text of the law (the bold, italics, caps and underlines are my own-doing). Note the law expires ("sunsets") on December 31, 2012.:
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 PRE-EXISTING 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.
NON-LEGAL EASE TRANSLATION: (but this is not legal advice please check with your attorney): Where a residential property sold in foreclosure, the remaining tenant (who must be a BONA FIDE TENANT - See Below for definition) is entitled to receive notice of their rights: mainly, that they have the right to live out the term of their lease - ASSUMING THE LEASE WAS ENTERED INTO PRIOR TO THE FORECLOSURE SALE, HOWEVER, the Successor in interest to the property (i.e. the bank that could not dump the property at a foreclosure sale, or, a successful bidder at the foreclosure auction) MAY TRY TO SELL THE PROPERTY, AND MAY EVICT THE TENANT WITH 90 DAYS NOTICE, BUT ONLY IF THE PERSON BUYING THE HOUSE PLANS ON LIVING THERE (AS OPPPOSED TO USING IT AS AN INVESTMENT PROPERTY OR SIMPLY "FLIPPING" THE PROPERTY).
If there is no lease in effect at the time of foreclosure (let's say a tenant was living in the property under an oral lease, or month to month lease terminable at will) the tenant must be given the 90 day notice to vacate before they can be evicted. That is a mouthful, I know. The end result is adding the three months along with the time needed to evict a tenant (assuming they do not voluntarily vacate) adds more frustration to lenders and third-party purchasers of the property and creates rules they must comply with.
WHAT IS A BONA FIDE TENANT UNDER THE HELPING FAMILIES SAVE THEIR HOMES ACT OF 2009 / PROTECTING TENANTS AT FORECLOSURE ACT OF 2009?
Only a bona fide tenant is entitled to the 90 day notice and the possibility to exercise the full term of any existing lease. Here is how the law defines bona fide 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).
TRANSLATION: DO NOT TRY TO ENTER INTO A SHAM LEASE PRIOR TO BEING FORECLOSED UPON IN ORDER TO TRY TO GET AN EXTRA 90 DAYS IN THE HOUSE. BUT THEN AGAIN, I SUPPOSE THE LENDER WOULD BE FORCED TO LITIGATE THIS ISSUE IN AN EVICTION PROCEEDING AND PROVE IT IS A SHAM.
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NOTE: There is also a section of the law that discuss tenants rights regarding Section 8 Housing. This Section states:
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.
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BOTTOM LINE ON FEDERAL TENANTS RIGHTS FOLLOWING FORECLOSURE
What might this mean in practice? In one case, recently we tried to perform a loan workout a major lender on an investment property. They were not willing to work-out or modify the loan. I think they were confident the property will sell at a public auction, and the house (and compliance with the Tenants Rights Law set forth herein) would be somebody else's problem to deal with. After there were no bidders at the foreclosure sale, and the property reverted back to the lender, NOW THEY ARE MOTIVATED TO MODIFY THE LOAN AND WILL TAKE A BETTER LOOK AT A MODIFICATION. So the end result may be increased change of loan modification for investment properties. I do not believe lenders want to get into the "landlord business." Being a landlord carries its own inherent risks. Note: Although this is a federal law ("law of the land") individual states are free to provide even greater protections to tenants. Please consult with an attorney before making any decisions.
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