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In 2009 President Obama signed into law The Protecting Tenants at Foreclosure Act of 2009 The purpose of this article is to address the application of the Act and identify the people to whom the act applies
What does The Protecting Tenants at Foreclosure Act of 2009 do
The Act is intended to provide some protection to tenants occupying a single family residence lost to a foreclosure due to no fault of their own The Act essentially says that the buyer of a single family residence of four units or less at a foreclosure sale shall assume the prior owners interest as landlord Specifically the Act says that the new owner must i Provide the bona fide tenant at least 90-days notice to vacate and ii allows the bona fide tenant to occupy the property until the end of the remaining lease term
Does The Protecting Tenants at Foreclosure Act of 2009 apply to all occupants of property post foreclosure
No It does not The Act only applies to bona fide tenants and where the loan that was the subject of the foreclosure was a federally related mortgage loan Otherwise the Act does not apply A lease or tenancy is bona fide only if the following apply i the borrower borrowers child borrowers spouse or parent is not the tenant ii the lease or tenancy was the result of an arms-length transaction and iii the rent paid by the tenant is not substantially less than fair market rent for the property or the units rent is reduced or subsidized due to a federal state or local subsidy
This bona fide lease tenant requirement is designed to prevent borrowers from construing the law in such a fashion so as to reap the benefits of a law intended to help tenants Whenever you see tenants that are friends or family members of the borrower then there is likely an issue with the bona fide tenancy If the lease terms seem too good to be true then there is likely to be an issue with bona fide tenancy If the notice of default was recorded prior to the lease then there is most definitely an issue with bona fide tenancy the tenants either knew or should have known about the foreclosure
In order for the Act to apply the loan that was the subject of the foreclosure must have been a federally related mortgage loan as that term is defined by 12 USC 2602 The word count for this definition alone exceeds the word limit for this article Suffice it to say that a federally related mortgage loan is broadly defined but certainly does not apply to all loans If the loan was originated by a depository based lender or was otherwise a government backed loan then the loan is probably a federally related mortgage To be sure you should consult an attorney
As you can see the exceptions to this Act are swallowing the Act If the tenant was not a bona fide tenant or if the loan that was the subject of the foreclosure was not a federally related mortgage loan then the Act does not apply and the new owner can recover possession of the property through a court proceeding Be very careful with the representations made to clients having to do with this Act As you can see the Act has narrow application If the tenant entered into the lease prior to the notice of default being recorded is unrelated to the borrower is paying market rent and the loan that was the subject of the foreclosure was a federally related mortgage loan then the Act likely applies
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