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Protecting Tenants at Foreclosure Act

Protecting Tenants at Foreclosure Act. Pisgah Legal Services Molly Maynard. Take Aways. Tenants get a minimum of 90 days notice to vacate after foreclosure, and are often entitled to complete their lease PTFA as currently written ends 12/31/2014, but other protections exist under NC laws

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Protecting Tenants at Foreclosure Act

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  1. Protecting Tenants at Foreclosure Act Pisgah Legal Services Molly Maynard

  2. Take Aways • Tenants get a minimum of 90 days notice to vacate after foreclosure, and are often entitled to complete their lease • PTFA as currently written ends 12/31/2014, but other protections exist under NC laws • Property managers and successors in interest often ignore these protections until reminded

  3. Protecting Tenants in Foreclosure Act of 2009 • Legislative response to widespread issue • Over 40% of foreclosures at the time impacted tenants • Took effect May 20, 2009 • Original sunset date December 31, 2012 • Dodd-Frank Act later extended expiration to December 31, 2014

  4. Generally • Law protects tenants with “bona fide tenancy” living in homes that are being foreclosed • Applies to any “federally related mortgage loan” • Requires that “immediate successor in interest” require with certain notice requirements

  5. Completion of Lease • Tenants who entered into lease before notice of foreclosure must be permitted to stay in the home through the end of the lease UNLESS: • The property is sold to a purchaser who will occupy the property as a primary residence OR • There is no lease or lease is terminable at will under state law • Even in those circumstances, however, tenants are entitled to the 90 day notice • Section 702(a)(2)(B)

  6. Special Protections for Section 8 Tenants • New owner takes subject to the Section 8 voucher lease AND the Section 8 HAP contract • New owner may not use foreclosure to evict residents (not good cause) UNLESS owner plans to occupy unit as a primary residence • In this case, 90 days notice still applies • Project Based Section 8 is not subject to section 703, but is subject to section 702

  7. Tenant Responsibilities After Foreclosure • Tenant must pay rent • Paid to successor in interest • If not accepted, should escrow rent • Failure to pay may be grounds for eviction • Important to keep track of escrow and notify new owner • Successor in interest must maintain property

  8. Issues in PTFA

  9. Federally Related Mortgage Loans • Same definition as Section 3 of RESPA (12 USC 2602) • Definition includes any loan secured by a lien on one-to-four family residential property, including units in condos or coops. • As of November 20,2013 OCC Guidance on these issues applies to Federal Savings Associations (in addition to National Banks)

  10. Immediate Successor in Interest • PTFA applies to banks who purchase at foreclosure as well as to private parties • Private parties intending to live in the home as a primary residence are treated slightly differently • Party does not become the successor in interest until the transfer is complete • In NC this means until the trustee’s deed is recorded

  11. Notice Requirement • Date of “notice of foreclosure” is the date on which complete title to a property is transferred to a successor in interest • Successor must provide at least 90 days notice to vacate • 90 day period cannot begin before completion of transfer to successor in interest • NOT the day foreclosure was initiated or the first time Tenant learned of the foreclosure

  12. Notice Issues • 90 day notice must be unambiguous • Bank of N.Y. Mellon v. De Meo, 254 P.3d 1138 (Ariz. App. 2011) (waiting 90 days before giving a shorter notice not sufficient) • Alta Cmty. Invs. III v. Ottoboni, No. 1370195 (Cal. Super. Ct. July 29, 2010) (notice which gave 30/60/90 day alternative time periods was found ambiguous) • E Trade Bank v. Salter, No. 1372298 (Cal. Super. Ct. Jan. 20, 2011) (30/60/90 day notice which required tenant to prove tenancy within 3 days found ambiguous) • Fed. Nat'l Mortg. Ass'n v. Vidal, No. 11H84SP004364, 2012 WL 597929 (Mass. Hous. Ct. Feb 17, 2012) (Fannie Mae required to serve 90 day notice even where eviction was based on non-payment of rent, a 14-day notice period)

  13. Bona Fide Lease or Tenancy • Conditions: • Mortgagor, or a child, spouse, parent of the mortgagor is not the tenant; and • Lease or tenancy was the product of an arm’s length transaction; and • Lease or tenancy requires the receipt of rent that is not less than fair market rent or the rent is reduced or subsidized due to federal, state, or local subsidy.

  14. Bona Fide Tenancy Issues • Successor in interest may not require tenant to prove bona fide tenancy within five days to avoid the 90 day notice obligation; burden is on owner to demonstrate that resident is NOT a tenant • Bank of Am. N.A. v. Owens, 903 N.Y.S.2d 667 (City Ct. 2010) • Unless otherwise proven, existing tenant presumed bona fide • Fed. Nat'l Mortgage Assoc. v. Dobson, No. 10-CVG-02140 (Ohio Mun. Ct. Mar. 1, 2010)

  15. NC Law Protections • Use after PTFA expires • Record lease with Register of Deeds if Tenant suspects that foreclosure may occur • Negotiate more time and/or “cash for keys” with new owner • NCGS 42-45.2 provides for early termination of lease by tenant after receiving notice of sale. • Tenant must give 10-day written notice.

  16. Other Protections in NC Law • Notice of Foreclosure: NCGS 45-21.17(4) Tenant given 20 day notice for properties with less than 15 units • Notice to Vacate Foreclosed Property: Upon application for Order of Possession, must show occupant was given 10 days notice, for properties with 15 or more units, tenants must be given 30 days notice

  17. Issues Arising from PTFA Violations

  18. Orders Without Sufficient Notice • Successors in interest, often through property management companies or substitute trustee firms, get Orders of Possession without appropriate notice

  19. Requiring Tenant to Prove Status • Notices often require tenant to submit their lease or otherwise prove their status as a bona fide tenant in order to be entitled to the 90 day notice • Often set very short timelines to do so

  20. Difficulty Reaching Appropriate Party • Different property managers to handle occupied and unoccupied parties • Tenants often receive notices from both • Unclear to tenants who they need to be communicating with

  21. Remedies • Can sometimes be resolved by contacting the moving party • If not, need to do a Motion to Set Aside Order before the clerk and a TRO • Case law in other states makes clear that tenants should not have to prove their status to be entitled to protections

  22. Cash for Keys • Often available if tenants are willing to move out prior to the termination of their lease

  23. NC Law on PTFA • Fannie Mae v. McLean, 2013 NC App. LEXIS 1006 (where lease has expired after foreclosure, tenant is not entitled to additional 90 day notice after end of lease) • Review denied

  24. Questions? • Contact the Pisgah Legal Services Consumer Protection Team: • molly@pisgahlegal.org • bill@pisgahlegal.org

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