Tenants in Foreclosed Properties

Many clients and associations in general (both condos and HOAs) are in possession of properties that do not have "clear title." This puts the association in the position of wanting to rent out the property until the lender forecloses. One question we hear often is what protections, if any, exist for a tenant who signs a bona fide lease with the association, only to have the lender foreclose on the property during the term of the lease. The good news is that the Protecting Tenants at Foreclosure Act of 2009 prevents a bank from evicting a tenant from a foreclosed property under certain circumstances. The Act applies to any property where the foreclosure was initiated after the Act was adopted. The protections of the Act are currently set to expire on December 31, 2014 unless they are extended by Congress. The protections of the Act are as follows:
  • If a bank forecloses on a property where a tenant lives under a bona fide unexpired lease, the bank cannot evict the tenant and must honor the terms of the lease.
  • If the bank foreclosure results in the property being sold to a purchaser who intends to occupy the property as their primary residence, the purchaser must give the tenant 90 days to vacate the property.
  • If the purchaser is neither the bank nor someone who intends to occupy the property as their primary residence, the purchaser (like the bank) must honor the terms of the lease.
These protections only apply where there is a "bona fide" lease. Bona fide means the lease is made to a person unrelated to the mortgagor (borrower), must be an arm's length transaction, and must be for a fair market rate rental rate. If the lease is not a "bona fide" lease, the tenant may be evicted but only after 90 days notice. In other words, in the worst of circumstances, a tenant can only be evicted upon 90 days' notice; in the best of circumstances, the tenant can stay in the property for the remaining lease term without being evicted. If you have any questions we can answer, please feel free to leave a comment or contact us directly. We look forward to continuing this conversation with you in our future posts!