Articles

Rights of Tenants After Foreclosure

 

By John M. Jorgensen
 
On May 20, 2009, “Protecting Tenants at Foreclosure Act” became a Federal law. The Act applies to any foreclosure “on a federally-related mortgage loan or on any dwelling or residential property” commenced after May 20, 2009. The Act provides that the purchaser at the foreclosure sale is required to furnish any bona fide tenant in possession a 90 day Notice to Vacate; except that a tenant in possession under a bona fide lease entered into prior to the commencement of the foreclosure may continue to occupy the property until the end of the remaining term of the lease. The right to remain in possession for the remainder of the lease term may be terminated by a subsequent purchaser that will occupy the property as their primary residence, upon furnishing the tenant a 90 day Notice to Vacate.
 
A tenancy is deemed bona fide only if: (1) the mortgagor or the child, spouse or parent of the mortgagor is not the tenant; (2) the lease was an arms length transaction; (3) the lease requires payment of rent that is not substantially less than fair market rent for the property or (4) the rent is reduced or subsidized due to a Federal, State or local subsidy.
 
Title insurance underwriters may now require an affidavit to be executed by the property owner or real estate agent of the owner stating that the property is currently vacant and that there is no claim of possession by a former tenant.
 
If the owner or its agent refuses to sign such an affidavit based on actual knowledge, title insurance underwriters may require a similar affidavit from the buyer. The buyer’s affidavit must also indicate whether the buyer is aware of any tenants in possession or of a prior lease and, if either is true, the buyer’s affidavit must also indicate that a 90 day Notice to Vacate has been duly given by the purchaser.