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GRAND CANYON LOOPHOLE FOR TENANTS & LANDLORDS IN FORECLOSURE

By
Real Estate Attorney with THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY

The Protecting Tenants at Foreclosure Act of 2009 clearly stated that any lease entered into AFTER the notice of foreclosure did not have the protection of the Act to allow the full lease term to run.  But the Dodd-Frank Wall Street Reform and Consumer Act opened up the Grand Canyon of income generation loopholes for Landlords and some greater safety for Tenants involved in a foreclosure!

I talked about the Protecting Tenants at Foreclosure Act of 2009  in my article Tenant Eviction Law and Foreclosure Problems back in 2009.  The most important portion of understanding that law for tenants and landlords was whether a tenant was covered under the timing provision of when the lease was entered into with the owner who was in foreclosure.  It was that the lease had to be entered into before the “notice of foreclosure” – an event commonly interpreted as when the foreclosure complaint was filed in the court (the lis pendens as some call it).

Dodd Frank Act -

The Dodd-Frank Act at Section 1484 changed that definition dramatically – effectively allowing any owner (landlord or potential landlord) to rent out their home to a bona fide renter at a market rent AT ANY TIME PRIOR TO THE ISSUANCE OF THE FORECLOSURE TITLE TO THE LENDER OR THIRD PARTY PURCHASER AT THE FORECLOSURE SALE OR TRANSFER, and that tenant’s lease will be honored for its full (but reasonable) term.  The proviso that the buyer at the foreclosure sale can evict the longer term tenant in 90 days still exists, provided that buyer who will occupy the property as a primary residence or when there is no lease or the lease is terminable at will under state law.  Anyone else, including the lender, must wait until the lease term expires.

How The Law Was Amended -

Section 1484 states:  The Protecting Tenants at Foreclosure Act is amended—

(1) in section 702 (12 U.S.C. 5220 note)—

(A) in subsection (a)(2), by striking ‘‘, as of the date of such notice of foreclosure’’; and

(B) in subsection (c), by inserting after the period the following: ‘‘For purposes of this section, the date of a notice of foreclosure shall be deemed to be the date on which complete title to a property is transferred to a successor

entity or person as a result of an order of a court or pursuant to provisions in a mortgage, deed of trust, or security deed.’’; and

(2) in section 704 (12 U.S.C. 5201 note), by striking ‘‘2012’’ and inserting ‘‘2014’’.

 

Impact on Tenants and Landlords in Foreclosure -

So what does this mean?  Before, if you were in foreclosure and you wanted to rent, you had to advise the prospective tenant of the pending foreclosure and that they would definitely have to be out on 90 days’ notice once the foreclosure sale was complete.  That has not changed as a matter of disclosure, as the same rule pertains to buyers at a foreclosure sale that were buying for use as their primary.  But before, if the lease were written after the foreclosure suit was filed, only the 90 day rule was in effect.  Now, REGARDLESS OF WHEN THE LEASE IS WRITTEN, if the buyer is not buying for primary home purposes, the full term of the lease must be honored.  Since most foreclosure sales end up with the lender or investors that are not buying for their own primary residence, this encompasses the majority of foreclosure sales.

New Pool of Rentals – Rental Income and Commission Source?

I love being an attorney – every day is an opportunity to learn, and this Grand Canyon of loopholes is one of those examples.

This therefore opens up a huge inventory of homes that were thought to be unable to be rented because of already filed foreclosure suits.  Very few investors and brokers are aware of this potential income and commission source. Realtors should be aware of these additional options available to their clients and it applies nationwide.

© 2013 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

Comments (8)

Anonymous
David Steinfeld

Richard,

Excellent article and wonderful, halpful information for renters caught in the middle of a foreclosure as well as those exploring the purchase of foreclosed properties for investment.

Sep 22, 2013 06:21 AM
#1
Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Buy Daytona condos for heavenly good prices

I had no clue. Was sure that since it is in foreclosure, you cant do anything. Very interesting.

Sep 22, 2013 04:55 PM
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

GC is a great place. I wish it well no matter how it turns out! :)

 

Love and light,

Laura

Sep 23, 2013 06:12 AM
Allen Lomax
Steed Talker Realty is with two hours of Tryon International Equestrian Center and we offer the best properties in th... - Sylva, NC
WNC Mountain Homes & Horse Farms Specialists

I was pretty sure of the interpretation but it is good to hear it from an attorney. 

Sep 23, 2013 09:06 AM
Chuck Mixon
The Keyes Company - Cutler Bay, FL
Cutler Bay Specialist, GRI, CDPE, BPOR

WOW  It sound like great news for you clients. I am looking at it from the other side of the canyon, another wrench in the gears for trying to get these homes in the hands of new owners that can afford then and can service the mortgages and HOA Fees. I feel this will just cause the HOA to fall deeper into the hole, as well as the lenders. Curious how this will effect the HOA/Court Receivers in recovering property foreclosure. Only time will tell.

Sep 23, 2013 12:08 PM
Elise Harron
Dirt Road Real Estate - Kingman, AZ
Rural Vacant Land and Development Specialist

Thank you, I keep wondering about the details of this act.  Thanks for the clarification. 

Sep 23, 2013 12:29 PM
Sharon & Bruce Walter
Keller Williams Realty Lafayette, IN - Lafayette, IN
West Lafayette homes for sale

Richard, this is VERY interesting information and how  Dodd-Frank changed the equation.  Always nice to read articles on federal legislation from an attorney who knows what is going on!

Sep 23, 2013 12:30 PM
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

Chuck #5 -

I think the end effect of this change, if properly exploited by owners in foreclosure and Associations legally able to grab rents for delinquent association fees, is that the associations are better off.  In fact, this change encourages associations to do their own foreclosures sooner so they can rent out the property - and the renter then has a decent chance of not being subject to a 90 day early termination.  

It's that 90 day loophole in the event the foreclosure buyer is going to use the home as a permanent residence that has the only monkey wrench in the matter.

Sep 25, 2013 08:22 PM