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Federal “Protecting Tenants at Foreclosure Act” is Back

Posted By Cliff Tuttle | May 26, 2018

No. 1,495

Image: philalegal.org

The 2010 Dodd Frank Act included a provision that required foreclosing lenders to give notice to tenants of the foreclosed owners.  Enacted in 2010, the sunset of this provision was December 31, 2014.

However, this law has been reenacted in SB 2155, the Economic Growth, Regulatory Relief and Consumer Protection Act, which was signed by the President earlier this week. The law requires a ninety-day notification to vacate by the new owner to the hold-over tenant under a bonfire lease. Loan servicing industry publication D S News , which has followed the progress of SB2155, seemed surprised to discover that this re-enactment had occurred.  From the lender’s point of view, this lengthens the time required to obtain possession of the collateral.  From the tenant’s point of view, until the sheriff’s hammer falls, the lease term may not have ended and it may not be safe to simply leave.

These provisions are contained in Title III, Section 304 of the Act and are effective 30 days after enactment. The reenacted provision applies not only to the foreclosing lender, but also to the purchaser at the sheriff sale, stating:

“after the date of enactment of this title, any immediate successor in interest in such property pursuant to the foreclosure shall assume such interest subject to—

(1) the provision, by such successor in interest of a notice to vacate to any bona fide tenant at least 90 days before the effective date of such notice; and

(2) the rights of any bona fide tenant, as of the date of such notice of foreclosure—

(A) under any bona fide lease entered into before the notice of foreclosure to occupy the premises until the end of the remaining term of the lease, except that a successor in interest may terminate a lease effective on the date of sale of the unit to a purchaser who will occupy the unit as a primary residence, subject to the receipt by the tenant of the 90 day notice under paragraph (1); or

(B) without a lease or with a lease terminable at will under State law, subject to the receipt by the tenant of the 90 day notice under subsection (1),

except that nothing under this section shall affect the require- ments for termination of any Federal or State-subsidized tenancy or of any State or local law that provides longer time periods or other additional protections for tenants.

(b) BONA FIDE LEASE OR TENANCY.—For purposes of this section, a lease or tenancy shall be considered bona fide only if— (1) the mortgagor or the child, spouse, or parent of the mortgagor under the contract is not the tenant;
(2) the lease or tenancy was the result of an arms-length transaction; and
(3) the lease or tenancy requires the receipt of rent that is not substantially less than fair market rent for the property or the unit’s rent is reduced or subsidized due to a Federal, State, or local subsidy.
(c) DEFINITION.—For purposes of this section, the term ‘‘federally-related mortgage loan’’ has the same meaning as in section 3 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2602).”

The reenacted statute also contains special protection for Section 8 Tenants.  unless the successor in ownership intends to occupy the premises, the  property shall pass subject to the existing lease and reimbursement contract.  The prospective owner-occupier must give the same 90 days’ notice.

CLT

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CLIFF TUTTLE has been a Pennsylvania lawyer for over 40 years and (inter alia) is a real estate litigator and legal writer. The posts in this blog are intended to provide general information about legal topics of interest to lawyers and consumers with a Pittsburgh and Western Pennsylvania focus. However, this information does not constitute legal advice and there is no lawyer-client relationship created when you read this blog. You are encouraged to leave comments but be aware that posted comments can be read by others. If you wish to contact me in privacy, please use the Contact Form located immediately below this message. I will reply promptly and in strict confidence.

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