Investors Beware When Buying Properties That Are Tenant Occupied

Real Estate Broker/Owner with Phoenix Property Shoppe AZ Broker BR030809000

Investors Beware When Buying Properties That Are Tenant Occupied


In 2009 the US Congress enacted the 'Protecting Tenants at Foreclosure Act. Basically the PTFA Act offered tenants protection of not being evicted in the case of a foreclosure.  There are four qualifications that need to met in order for the tenant to keep possession of the property after a foreclosure by the landlords creditor.  

  1. The defaulting borrower can not be the same person as the tenantInvestor Beware of Buying Homes with Tenants
  2. The lease must be an 'arms length' agreement
  3. The lease must require 'fair market rent'
  4. The lease must have been executed prior to the notice of trustee sale
Until recently the 'notice of trustee sale meant was understood to mean the 90 day notice the lender is required to provide the borrower before proceeding with the foreclosure. Basically that meant the tenant must have signed the lease at least 90 day before the trustee sale.
Here's where it could become a big game changer for investors... according to the The Dodd Frank Act the 90 day notice requirement has been eliminated in Section 1414(1) (B).  The tenant must only show that the lease was entered into anytime before title transfers from the original borrower to a 'a successor entity or person' at the trustee sale.
So what does this mean for Investors buying property?  The defaulting borrower could enter into a lease with a new tenant the morning of the trustee sale thus requiring the new owner to honor the lease following the foreclosure. This means the new owner could be stuck with with renting the property for the remainder of the lease term. 


Investors Beware When Buying Properties That Are Tenant Occupied




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Re-Blogged 4 times:

Re-Blogged By Re-Blogged At
  1. Cathy Criado 04/26/2012 01:30 PM
  2. Wallace S. Gibson, CPM 04/26/2012 08:15 PM
  3. Pacita Dimacali 04/28/2012 03:14 AM
  4. Gene Riemenschneider 04/29/2012 02:51 PM
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investors beware when buying properties that are tenant occupied

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Fred Griffin
Fred Griffin Real Estate - Tallahassee, FL
Licensed Florida Real Estate Broker

Groan!  How will an Investor or Buyer protect themself against this?  It will be interesting to hear what the Lawyers have to say about this one.

Apr 26, 2012 11:05 AM #1
Ed Silva
RE/MAX Professionals, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

That will complicate some sales for sure. Politicians just don't know when to stop meddling

Apr 26, 2012 11:07 AM #2
Anna Banana Kruchten,CRS,CRB,GRI
Phoenix Property Shoppe - Phoenix, AZ
Arizona's Top Banana of Real Estate!

Fred I heard this from one of our best attorneys today. Sneaky little thing to be 'hiding' within an act. Who does it protect?  It just seems down right wrong to allow a default borrower to create such a mess. And for what reason - because they're upset their loosing the property.

Ed - agreed.  Books and books of acts...rules you name it.  I don't expect it to change anytime soon.

Apr 26, 2012 11:15 AM #3
Jerry Newman
Brown Realty, 210-789-4216, - San Antonio, TX
Texas REALTOR, San Antonio Military Relocation

Anna. this some great information for all investors to be ware of. It is certainly not in the investors favor, and the tenants could cause more damages to the new owner's investment too. I like Fred. How are investors going to protect themselves? They certainly won't be allowed to charge more security deposit.

Apr 26, 2012 12:00 PM #4
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

Great post Anna - never buy until you are sure what the occupancy situation is.  Thanks.

Apr 26, 2012 12:43 PM #5
Kathy Sheehan
Bay Equity, LLC 770-634-4021 - Atlanta, GA
Senior Loan Officer

That is definitely an eye opening situation for some investors.  Great info!

Apr 26, 2012 01:02 PM #6
Cathy Criado
Criado Realty - San Antonio, TX
Making Real Estate Profitable

Hi Anna - Excellent point. This was a topic of discussion in a consumer class I attened via COSA (City of San Antonio). We offer a 1st time home buyer down payment assistant program and it specifically states that the home must be owner occupied or vacant to avoid getting trapped into payint 90 days rent to a renter, and their moving expenses. Good call to blog on this!


Apr 26, 2012 01:22 PM #7
David Shamansky
US Mortgages - David Shamansky - Highlands Ranch, CO
Creative, Aggressive & 560 FICO - OK, Colorado Mtg

This post is excellent as I get asked this on a frequent basis and not being a Realtor I can only give te info I have heard and believed to be accurate. Now I have better reference points to back up my position... THANKS!


Apr 26, 2012 01:56 PM #8
David Shamansky
US Mortgages - David Shamansky - Highlands Ranch, CO
Creative, Aggressive & 560 FICO - OK, Colorado Mtg

Oh and of course... SUGGESTED

Apr 26, 2012 01:57 PM #9
Harry F. D'Elia
Real Estate and Beyond, LLC - Phoenix, AZ
Investor , Mentor, GRI, Radio, CIPS, REOs, ABR

Yes, the tenant must be renting at fair market value and prove they have been making payments via cancel checks.

Apr 26, 2012 02:05 PM #10
Evelyn Kennedy
Alain Pinel Realtors - Alameda, CA
Alameda, Real Estate, Alameda, CA


I came over from Cathy Bureau's reblog of your post.  You have provided important information an investor needs to know.

Apr 26, 2012 02:10 PM #11
Wallace S. Gibson, CPM
Gibson Management Group, Ltd. - Charlottesville, VA

In VA, we would provide an estoppel certificate even for a residential lease and a copy of the lease ONLY if the purchaser has already submitted a contract AND signed a confidentiality agreement.

Tenant leases should NOT be provided in MLS or to "just anyone" as they often contain personal tenant information and signatures!

Apr 26, 2012 08:15 PM #12
Kathryn Maguire (757) 560-0881 - Chesapeake, VA
Serving Chesapeake, Norfolk, VA Beach

Ugh!  It makes you wonder what the legislators were thinking.

Apr 26, 2012 09:21 PM #13
Lisa Von Domek
Lisa Von Domek & Associates LLC Team - Dallas, TX
....Experience Isn't Expensive.... It's Priceless!

Good morning Anna,

Great post, information that every investor needs - well done!

Apr 26, 2012 09:55 PM #14
Irene Durocher
Coldwell Banker BUYERS AGENT - Boca Raton, FL

Great advice Anna. So many people think they can Go around " the system. I will tell you

my "story " when we meet for lunch today.

Irene Durocher Coldwell Banker

Boca Raton,Fla on the Atlantic Ocean


Apr 26, 2012 11:37 PM #15
Karen Fiddler, Broker/Owner
Karen Parsons-Fiddler, Broker 949-510-2395 - Mission Viejo, CA
Orange County & Lake Arrowhead, CA (949)510-2395

Another example of Washington meddling and making things worse in the name of "helping"

Apr 27, 2012 12:31 AM #16
Michael Jacobs
Coldwell Banker Residential Brokerage - Pasadena, CA
Los Angeles Pasadena Area Real Estate 818.516.4393

Anna -- this certainly blurs the concept of "protecting"  innocent parties.   

Apr 27, 2012 04:47 AM #17
Ron Marshall
Marshall Enterprises - Saint Michael, MN
Birdhouse Builder Extraordinaire

That is a scary scenario, Anna.  And, one that dissatisified owners might resort to unfortuately.

Apr 27, 2012 06:36 AM #18
Lou Ludwig
Ludwig & Associates - Boca Raton, FL
Designations Earned CRB, CRS, CIPS, GRI, SRES, TRC


Your advice is right on point it can develop into a big time problem.

Good luck and success.

Lou Ludwig

Apr 27, 2012 12:27 PM #19
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA


As buyer's agent, we can insist as a condition of purchase, that the property is delivered vacant, and that the seller provide proof that notice to vacate at a certain date has been properly delivered to the tenants. If sellers refuse, then it's up to the buyer to decide whether to proceed with the purchase or find something else.

This is good information to share. Thanks!

Apr 28, 2012 03:12 AM #20
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