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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