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On May 20 President Obama signed into law the Helping Families Save Their Homes Act. Understandably, primary attention has been paid to the Act’s provisions that are designed to help distressed homeowners avoid foreclosure. But the Act has other beneficiaries as well. One group that will receive particular assistance from this new law is those people who – often in good faith – are renting a property that goes into foreclosure.
Many times renters of residential properties are caught in the middle of a foreclosure situation. Frequently, they will not be aware of the fact that the owner is delinquent. Their first notice of trouble may be the posting of a sale notice on the property. That may only give them a few weeks warning that something is not right. Also, they may not know how this will affect them. In some jurisdictions they may be subject to eviction with little or no advance warning.
Sections 701 - 704 of the larger bill are cited as the “Protecting Tenants at Foreclosure Act of 2009.” This applies to all federally related loans, which is to say just about every residential loan except seller financing.
Section 702 provides that any person or entity who acquires a property through the foreclosure process may give a bona fide tenant not less than a ninety-day notice to vacate the premises. This applies to tenants who are on a periodic tenancy such as the typical month-to-month rental.
If a tenant has a lease that was entered into prior to the notice of foreclosure, then the tenant has the right to occupy the property for the duration of the lease. There is one exception to this. The exception occurs if the foreclosed property is sold to someone who will occupy it as their primary residence. In that case, even if there is a lease, the tenant may be given a ninety-day notice to vacate “effective on the date of sale of the unit to [the owner occupant] purchaser.”
So, if the notice must be at least ninety days, and the termination of the lease is effective the date of sale, that would mean that the notice of termination would be given during the escrow period, not less than ninety days prior to closing. Suppose the escrow “falls out” (e.g. the buyer doesn’t qualify for a loan) during the escrow period. What happens then? The Act is silent on such a possibility, but, presumably, a new ninety-day notice period would be required if there is a subsequent sale to another owner-occupant buyer.
That’s my interpretation. Some bank might have a different one.
The provisions of the Act do not supersede any federal or state subsidized tenancies – or any local provisions – that might provide for even longer notice periods.
For purposes of Section 702, a tenancy is bona fide only if (1) the tenant is not the borrower who has been foreclosed on, (2) the tenancy was created as a result of an “arm’s length” transaction, and (3) the tenancy requires a rental payment that is “not substantially less than fair market rent for the property.”
These provisions are effective immediately and will terminate December 31, 2012.
June 2009
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