Protecting Tenants at Foreclosure Act

Summary of the Act

An increasing number of tenants have found themselves displaced after being caught unaware that their rental was being foreclosed. The Protecting Tenants at Foreclosure Act ensures that tenants receive appropriate notice of foreclosure and are not abruptly displaced.

Under the Act, the new property owner cannot evict a month–to–month tenant for 90 days or, when a lease is in effect, until the tenant’s lease ends except when the new property owner is going to use the rental property as his or her primary residence. In that case, the new owner only has to give the tenant 90 days notice.

Frequently Asked Questions about the Act

Requirements Under the Act

  • The new owner must be the “immediate successor in interest,” such as a person or the bank that foreclosed on the property.
  • The tenancy or lease must be bona fide. The tenant cannot be the mortgagor or a member of the mortgagor’s family. The tenancy or lease must be the result of an arms–length transaction, and the tenancy or lease must require the payment of fair market rent or rent that is subsidized through federal, state or local subsidies.

Section 8 Tenants

The law provides Section 8 tenants with all of the same rights as other tenants. The new owner must give the tenants a 90–day notice to leave if the owner intends to occupy the property as a primary residence. The tenant’s Section 8 Housing Assistance Payment contract continues, and foreclosure is not a lawful reason for the owner to terminate a lease.

Who Regulates the Act

The law is self–regulating, which means that no government agency enforces it. Tenants must take action to enforce their rights.

What to do if your Rental is Foreclosed

A Tenant without a Written Lease

  • Send a Letter to the Owner. If you receive notice from the new owner asking you to vacate the foreclosed property before the 90–day period ends, send a letter via certified mail, return receipt requested, to the new owner informing them of the law. Click here for a sample letter.
  • Attend All Hearings. If you receive an eviction notice, you must attend all court hearings. Take a copy of (a) any documents showing your tenancy, such as rental receipts; (b) the letter you sent to the owner; (c) the return receipt; and (d) a copy of the law. Explain to the judge why you are entitled to remain in the rental for 90 days. See the Landlord and Tenant Guidelines for additional information about defending an eviction claim.
  • Continue Paying Rent.
    • Before the Sale. Until the property transfers to a new owner, you must continue to pay rent to your landlord. It is very important to keep copies of your payments in case a dispute arises about whether you paid your rent or to whom you paid it.
    • After the Sale. When the property is sold to the new owner, it is the owner’s responsibility to notify you that you have 90 days to vacate the property. You must offer to pay rent to the new owner during the 90–day period. If the owner requires you to pay rent and you fail to do so, the owner can evict you. See the Landlord and Tenant Guidelines for information about the eviction process.
  • Negotiate a New Lease (optional). If you want to remain in the rental beyond the 90 days, you can negotiate a new lease with the new owner. To protect yourself, you should obtain a written agreement and make sure it allows you sufficient time to relocate if the owner sells the home. See the Landlord and Tenant Guidelines for general information about lease agreements.
  • Request Your Deposit. If the prior owner fails to return your deposit, you can file a lawsuit against the owner demanding a refund. See the Landlord and Tenant Guidelines for additional information about deposits.

A Tenant with a Written Lease That Has Not Expired

  • Send a Letter to the Owner. If you receive written or oral notice from the new owner asking you to vacate the foreclosed property before the end of your lease, send a letter via certified mail, return receipt requested, to the new owner informing them of the law. Click here for a sample letter.
  • Attend All Hearings. If you receive an eviction notice, you must attend all court hearings. Take a copy of (a) your lease agreement; (b) the letter you sent to the owner; (c) the return receipt; and (d) a copy of the law. Explain to the judge why you are entitled to remain in the rental. See the Landlord and Tenant Guidelines for additional information about defending an eviction claim.
  • Continue Paying Rent. You must continue to pay rent to your landlord under the terms of the lease. It is very important to keep copies of your payments. See the Landlord and Tenant Guidelines for additional information about rental payments.
    • Before the Sale. Until the property transfers to a new owner, you must continue to pay rent to your landlord under the terms of your lease. It is very important to keep copies of your payments in case a dispute arises about whether you paid your rent or to whom you paid it.
    • After the Sale. When the property is sold to the new owner, it is the owner’s responsibility to notify you that you have until the end of your lease to vacate the property. You must offer to pay rent to the new owner during the lease period. If the owner requires you to pay rent and you fail to do so, the owner can evict you. See the Landlord and Tenant Guidelines for information about the eviction process.
  • Negotiate a New Lease (optional). When your lease ends, if you want to remain in the rental, you can negotiate a new lease with the new owner. To protect yourself, you should obtain a written agreement and make sure it allows you sufficient time to relocate if the owner sells the home. See the Landlord and Tenant Guidelines for general information about lease agreements.
  • Request Your Deposit. If the prior owner fails to return your deposit, you can file a lawsuit against the owner demanding a refund. See the Landlord and Tenant Guidelines for additional information about deposits.

A Section 8 Tenant

Call your Section 8 worker and inform him or her about the foreclosure. Click here for a sample letter to send to the new owner.

Information for Successors in Interest (New Property Owners)

The following is intended to assist realtors, financial institutions, lawyers and others who may encounter a situation that falls under the Protecting Tenants at Foreclosure Act. The Attorney General’s Office encourages persons and entities with legal questions about their obligations under the Act to contact their private attorney.

Introduction:

  • Immediate successors of a rental property take their interest subject to the remaining term of any bona fide lease. The obligations of the Act are broadly imposed by the Helping Families Save Their Homes Act of 2009 and are not limited to FHA–insured or HUD–assisted housing.
  • The responsibility for providing advance notice to tenants falls on the immediate successor in interest.

Section 702:

  • Section 702 of the Act applies to any foreclosure on a “Federally–related mortgage” loan, as well as any foreclosure on the mortgage of any dwelling or residential real property. The term “Federally–related mortgage” is defined in Section 3 of the Real Estate Settlement Procedures Act . The Act covers all residential property foreclosures regardless of the entity involved in the foreclosure and regardless of whether the tenants are recipients of any type of housing assistance.
  • The Act does not apply to tenants who are the child, spouse or parent of the mortgagor. The original lease agreement must have been the result of an arms–length transaction and require the payment of a fair market rent.

Section 703:

  • Section 703 addresses residential housing in which tenants receiving Section 8 rental voucher assistance reside. The protections in this section are in addition to those of Section 702. Section 703 makes conforming changes to the United States Housing Act of 1937 to ensure the Act covers leases and housing assistance payments contracts applicable to Section 8 tenants.
  • Immediate successor owners of foreclosed properties in which Section 8 voucher recipients reside become participants in HUD’s Section 8(o) tenant–based voucher programs and must comply with Sections 702 and 703. A demand upon the Section 8 voucher recipient to vacate the property before the sale of the property does not constitute “other good cause” as meant in HUD’s regulations on termination of tenancy. However, the owner may terminate the tenancy effective on the date of the property transfer if the owner: (a) will occupy the property as a primary residence; and (b) has provided the tenant with a notice to vacate at least 90 days before the effective date of the notice.

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