Tenants In Foreclosed Properties May No Longer Lose Their Leases

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Prior to May 20, 2009, most renters lost their leases upon foreclosure. The rule in most states was that if the mortgage was recorded before the lease was signed, a foreclosure wiped out the lease. This rule is known as first in time, first in right. Because most leases last no longer than a year, it is all too common for the mortgage to predate the lease and thereby destroy it upon foreclosure.

These rules changed dramatically on May 20, 2009, when President Obama signed the Protecting Tenants at Foreclosure Act of 2009. This little known legislation provided that leases would survive a foreclosure — meaning the tenant could stay at least until the end of the lease, and that month-to-month tenants would be entitled to 90 days’ notice before having to move out.

In reality, this does not translate to the responsible tenant now living rent free. Rent should now to be paid to the foreclosing financial institution. Do not expect this to be understood by all parties. In fact, you will need legal counsel to make this work in your favor. Fear not, this is both manageable and affordable.

In Colorado and several other states, official notice of a foreclosure is both mailed to the occupant of the property with a separate notice posted on the property being foreclosed. Tenants receiving such notice are advised to seek legal assistance on at least two fronts.

The first reason for getting legal help is to avoid being evicted by a landlord that attempts to continue to collect rent on the property being foreclosed. Second to set up a trust account with the attorney so you can “continue” paying your rent on behalf of the proper party. The attorney can help you establish your track record of responsibility on behalf of your mortgage and lease credit. While this will not report on your credit it will allow you to document to third parties that you continued to pay your lease on a timely basis.

I suggest the tenant to discuss their options with a Real Estate attorney. If your attorney is not aware of the Protecting Tenants at Foreclosure Act of 2009, send them this blog. While on this subject, hiring an attorney is ever most likely far less expensive than the cost of moving and setting up a new lease.

As exerpted from this article, PTFA Has Given Tenants More Options When Facing Eviction: “Tenants who are facing foreclosure and are protected under PTFA have more options than they did before. PTFA, like much of today’s housing regulation, was created in response to the mortgage crisis of 2008. It was set to expire at the end of 2012 but the expiration date was extended to December 31, 2014 due to the passage of the Dodd-Frank Reform Act in 2010.”

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Art Credit: Google Images

 Financially SpeakingJames Spray CCMB, CNE, FICO Pro | CO LMO 100008715 / NMLS 257365 | January 28, 2011 | Updated September 18, 2014
 Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.

6 comments on “Tenants In Foreclosed Properties May No Longer Lose Their Leases

  1. jamesspray says:

    If there is no lease in existance at the inception of the foreclosure, does this provision apply? I think no is the answer and would love to be corrected.

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  2. James Spray says:

    8/2/2011 – Legislation introduced to allow Fannie, Freddie and FHA to lease properties to foreclosed former owners or others for a five year period – http://www.dsnews.com/articles/bill-introduced-to-support-foreclosure-rentals-2011-08-01

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  3. James Spray says:

    AHMSI Sued for Misleading Tenants per PTAF
    Posted: 31 Oct 2011 02:04 PM PDT
    Loan servicers and their henchmen (attorneys and real estate brokers) continue to ignore the requirements of the Protecting Tenants at Foreclosure Act. Many take the position that tenants’ leases do not have to be honored, and instead only provide a 90 day notice to vacate. Some decide to advise tenants of their “rights” expressly. On October 28, 2011, American Home Mortgage Servicing, Inc. (AHMSI) was sued for issuing a letter to a tenant that said as much, and refusing to change its letter in the future despite numerous requests. Without any basis in the law, AHMSI’s representatives also demand extensive documentation within a short time frame in order to get the 90 days. AHMSI even said for the tenant to not be concerned with an eviction. It appears that loan servicers hope to take advantage of tenants as much as possible and hope the law is not extended past December 2014.
    Rather than merely defend frivolous eviction cases — loan servicers such as AHMSI should be sued for damages and for orders to require them to comply with the law.
    http://foreclosurebuzz.org/2011/10/31/ahmsi-sued-for-misleading-tenants-per-ptaf/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+ForeclosureBuzz+%28Foreclosure+Buzz%29

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  4. James Spray says:

    Per HUD as of 1/9/12 –
    The Protecting Tenants at Foreclosure Act:

    The Protecting Tenants at Foreclosure Act went into effect in May 2009 and provides protections to tenants in foreclosed properties. The Act was originally set to expire on December 31, 2012, but the Dodd-Frank Wall Street Reform and Consumer Protection Act extended the expiration date to December 31, 2014. The purpose of this email is to ensure you are aware of the protections available under the Act so that you can knowledgeably assist affected clients. In brief, under the legislation, the immediate successor of interest (generally the purchaser) of a foreclosed property must provide all tenants with at least 90 days notice prior to eviction because of foreclosure. Additionally, tenants must be permitted to stay in the residence until the end of the lease, with two exceptions:

    1. The property is sold after foreclosure to a purchaser who will occupy the property as a primary residence, or

    2. there is no lease or the lease is terminable at will under state law.

    However, even if these exceptions apply, the tenant must be given at least 90 days notice prior to eviction. The rights of Section 8 tenants are also protected under the Act.

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  5. James Spray says:

    AGs: we are serious, abide by Protecting Tenants at Foreclosure Act. Now you big banks have to really obey the law. For sure this time. Really.
    http://bit.ly/zDgx6M

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