Oct 26

Protecting Tenants at Foreclosure Act of 2009

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Prior to 2009, the foreclosure of a residential property in Idaho that was occupied by a tenant typically left the tenant with one option; voluntarily leave or be evicted.  Under Idaho law, the foreclosure of a property eliminates all other interests in the property, including leaseholds, that were created after the foreclosing mortgage or lien were created.  I.C. § 45-1508.  Due to this, a tenant’s lease would be invalidated and the tenant’s right to occupy the property disappeared.   This converted the tenant to a “tenants at sufferance” who was no longer entitled to receive statutorily required notices prior to the commencement of an eviction proceeding. I.C. §§ 45-1506(11), 6-310.  If the tenant failed to vacate the property, the purchaser of the foreclosed property could file to evict the tenant, and would be successful at evicting the tenant.

In 2009, Barak Obama signed into law the Protecting Tenant at Foreclosure Act of 2009. Pub. L. 111-22. This act was intended to protect tenants who have no defense to an eviction if the landlord fails to pay the mortgage, regardless of the tenant’s compliance with the terms of a lease.  If the tenant qualifies for protection of the Protecting Tenant at Foreclosure Act of 2009 (“PTFA”), the person or entity purchasing the foreclosed residential property (the “successor in interest”) takes the property subject to any existing lease and provides tenants residing in the property with notice of vacate at least 90 days in advance of the date the tenants must vacate the property.

In other words, and under the assumption that the PTFA applies, a tenant in a foreclosed residential property is entitled to remain in the property for the term of the lease.  Additionally, and regardless of contrary requirements in the lease, the successor in interest must provide a 90 day notice to vacate.  Even if the tenant is on a month to month lease, the tenant is entitled to the 90 notice to vacate.  Failure to provide the 90 day notice to vacate permits the tenant to remain in the property until the 90 day notice to vacate is properly served and remain in possession for those 90 days.

In order to qualify under the PTFA, the tenant must enter a bona fide lease prior to the date of the notice of foreclosure, which is the date of the foreclosure or trustee’s sale.  A bona filed lease is one in which: 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.  All three provisions must be met for a tenant’s lease to qualify as bona fide lease.

The PTFA is a powerful law to protect bona fide tenants in foreclosed properties.  However, this protection is not limitless.  A bona fide tenant who claims protection under the PTFA must continue to comply with the terms of the lease, especially the payment of rent.  The PTFA only precludes an eviction due to the foreclosure of a residential property.  A tenant’s failure to comply with the terms of the lease may result in a tenant being evicted prior to the expiration of the lease or 90 day period.

Additionally, if a tenant who qualifies under the PTFA fails to assert the PTFA as a defense in an eviction proceeding, or if the tenant voluntarily vacates the property, the tenant cannot later claim that the successor in interest violated the PTFA and seek damages for said violation of the PTFA or regain possession of the property.  The tenant is left as if the PTFA did not apply.

The protections offered by the PTFA expire on December 31, 2014, unless extended by Congress at a later date.