Thanks to U.S. Senate Bill 896, the “Helping Families Save Their Homes Act of 2009“, as amended with Senate Amendment 1036, the “Protecting Tenants at Foreclosure Act of 2009“, tenants are now entitled to stay through the end of their lease, and receive 90 days notice prior to eviction after a foreclosure through out the country. In California this supercedes the 60 days that went into affect with CA Senate Bill 1137 last year.
For those of you buying at the auction it is more important then ever to verify occupancy if at all possible prior to making your purchase unless you are prepared to be stuck with a rental for an extended period. Depending on your MLS you may be able to lookup the rental (if it was listed by a Realtor) to find out if is was advertised as a lease or month-to-month rental. If you do happen to buy one with an extended lease don’t forget that you can still try to negotiate cash-4-keys, and in the worst case you are at least entitled to the rent.
The text of the amendment can be found below, as well as the links above:
SA 1036. Mr. KERRY (for himself, Mrs. Gillibrand, Mr. Reid, Mr. Dodd, and Mr. Kennedy) submitted an amendment intended to be proposed to amendment SA 1018 submitted by Mr. Dodd (for himself and Mr. Shelby)
to the bill S. 896, to prevent mortgage foreclosures and enhance
mortgage credit availability; which was ordered to lie on the table; as
follows:
At the end of the amendment, add the following:
TITLE V–PROTECTING TENANTS AT FORECLOSURE ACT
SEC. 501. SHORT TITLE.
This title may be cited as the “Protecting Tenants at Foreclosure Act of 2009”.
SEC. 502. EFFECT OF FORECLOSURE ON PREEXISTING TENANCY.
(a) In General.–In
the case of any foreclosure on a federally-related mortgage loan or on
any dwelling or residential real property after the date of enactment
of this title, any immediate successor in interest in such property
pursuant to the foreclosure 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
requirements 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 under the contract is not the tenant;
(2) the lease or tenancy was the result of an arms-length transaction; or
(3) the lease or tenancy requires the receipt of rent that is not substantially less than fair market rent for the property.
(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).
SEC. 503. EFFECT OF FORECLOSURE ON SECTION 8 TENANCIES.
Section 8(o)(7) of the United States Housing Act of 1937 (42 U.S.C. 1437f(o)(7)) is amended–
(1) by inserting before the semi-colon in subparagraph (C) the
following: “and in the case of an owner who is an immediate successor
in interest pursuant to foreclosure–
“(i) during the initial term of the lease vacating the property prior to sale shall not constitute other good cause; and
“(ii) in subsequent lease terms, vacating the property prior to sale
may constitute good cause if the property is unmarketable while
occupied, or if such owner will occupy the unit as a primary
residence”; and
(2) by inserting at the end of subparagraph
(F) the following: “In the case of any foreclosure on any
federally-related mortgage loan (as that term is defined in section 3
of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2602))
or on any residential real property in which a recipient of assistance
under this subsection resides, the immediate successor in interest in
such property pursuant to the foreclosure shall assume such interest
subject to the lease between the prior owner and the tenant and to the
housing assistance payments contract between the prior owner and the
public housing agency for the occupied unit, except that this provision
and the provisions related to foreclosure in subparagraph (C) shall not
shall not affect any State or local law that provides longer time
periods or other additional protections for tenants.”.
SEC. 504. SUNSET.
This title, and any amendments made by this title are repealed, and the
requirements under this title shall terminate, on December 31, 2012.
What I want to know is if the lender ends up with the property are they also required to honor the lease agreement? The lenders always seem to bend the rules in their favor. For example, if you purchase a home at the courthouse steps and sell it to an FHA buyer then 91 days of title seasoning is required. However, if the bank ends up with the property at the auction and sells it REO no such seasoning is required for the FHA buyer.
Go onto You tube and read the book
“The Creature from Jekyll Island”. Big Money always wins.
It is amazing that the banks/servicer are now going to also be property managers? How do they expect to collect rents from tenants and/or homeowners that have not paid rent or mortgage for months. They need to create realistic expectations.
Where is there common sense, has that gone out the door?
I’m actually facing this situation myself. And my specific question, if any can shed some light, was asked in an earlier comment. That is, if a house is simply taken back by the bank at foreclosure rather than sold at auction, is the lease protection still in place? Or is the protection only for properties that are actually sold?
If it’s all cases including where the bank takes back the property, then is the renter himself required to stay through the lease? It doesn’t seem terribly attractive to rent from a party that has no real interest in maintaining the property.
Yes the bank has to honor the lease or contract with the previous owner, or who they took the property back from. From my local investors, they are seeking properties with no tenants, why would they want to take on problems with tenants/homeowners. I believe this will create individuals making up fake contracts, what does the bank expect. The problem is getting worse.
Thoughts?
Submitted by Anonymous: “It is amazing that the banks/servicer are now going to also be property managers? How do they expect to collect rents from tenants and/or homeowners that have not paid rent or mortgage for months.”
That is an erroneous statement. Foreclosed on mortgage holders not paying? Yes. Renters? No. Investors not paying mortgages and collecting rent from unsuspecting tenants is what gave rise to this legislation.
Even as the investor receives their NOD, they continue to collect the rent and never tell the tenant. The tenants continue to pay until the sheriff shows up for eviction, usually the first time the tenant hears anything.
Even in the case of new owner or REO, if the tenant does not pay the rent, 21 day or 3 day eviction in Calif. Attorneys here do it for under $600 all the time. Then you are free and clear Anonymous…
To be more clear… there can be a 1 year lease, 3 year lease with the tenant, does not matter…
Usually, depending on any local ordinance, which is not very common outside of SF…
If the tenant is more than 30 days late with the rent, owes you June 1st rent… on July 1 you can serve them with a 3 day eviction notice. If they don’t pay up…
On the morning of the 4th you pay the sheriffs dept. a reasonable fee to remove them. It happens on the spot.
Lease or no lease…
In California, unlawful detainer actions (evictions) can be fast, but not that fast. The complaint and summons must be filed with the Superior Court in the county of the property, served on the tenant, then the tenant has 5 days to answer. If no answer, a default judgment can be obtained by the owner. Once the judgment for possession is obtained, the sheriff (after payment of fees) will serve an eviction notice. Then sheriff will return about 5 days later to physically remove the occupant, if still in possession. Normally the owner and a locksmith meet the sheriff there.
Hi Problem Is, really appreciate your contributing to the site, but your off base on a couple things with your posts above.
1. The notice periods you mention do not apply to renters in foreclosed properties. Federal law now requires 90 days notice. Period. And that is the notice period before the unlawful detainer lawsuit can be filed – NOT – the notice until the sheriff can remove them. So the reality is the lender will likely get an additional 45-90 days after the notice period before the court can hear the case and the sheriff is scheduled to come out.
2. The new law also says that prior leases have to be honored so long as they are “bonafide” and for market rents.
Clearly the pendulum has swung on this issue and is now far in favor of renters… I personally think a bit too far.
What if I am the former owner and not the tennant am I also protected on the 90 day period or can evict me in 3 days after the auction sale? Please help!!! ;(
Thank you.
You only get 3 days notice in CA. But after that they can’t just evict you, they have to file an unlawful detainer suit, so it will likely by 30-90 days before a sherrif can throw you out. Note that if you force the eviction the judge will also award the new owner a money judgment against you for fair market rent from the day the property was foreclosed on until the day you were removed.
Best bet though is to negotiate with the new owner. Typically they will give you some cash to move quickly and leave the place clean. That also will keep you from having an eviction lawsuit and judgement on your credit record.
i think this is a great bill for people. This will help people get back on their feet before they put on the street. The old law had no type of timeframe and put alot people on the street right away. This is so bad when people have kids so this effects more people then you.
I believe this will create individuals making up fake contracts, what does the bank expect. The problem is getting worse.
The protection offered by building and contents insurance, can cover a valuable home and all of its contents against a huge range of risks, but if you are one of the thousands of people struggling to afford the mortgage that comes with a new house your first home then there are various government initiatives to help, it is easy to find them.
I am leasing a house on a 2 year lease. The house is going to be going to a trustee sale soon. I spoke with my attorney, and he tells me that if the bank takes the property back that they must honor my lease. I asked him,”What if the bank sells the house to a buyer who wants to owner occupy the property?” He told me that the new owner must still honor the original lease to its full term. Does this sound correct? My attny is pretty sharp.. top of his class at Santa Clara University Law School in real estate law for 20 years.
Your attorney is incorrect. The lease is wiped out by the foreclosure sale unless it was recorded prior to the loan being foreclosed on (extremely unlikely). I wouldn’t worry too much though, very few owner-occupants buy property at trustee sale. The law above provides some protection, but clearly excepts owner-occupants, see Sec 502(a)2A.
That said, you’d be wise to plan on moving. Whomever ends up with it is going to want you out, and will likely offer you cash to move and leave the place clean. You’ll be moving sooner or later, might as well take the cash and move now.
The house has not yet gone to sale, but will in 30 days. I signed my lease 2 months ago. I live in Calif.
Plus Leases are not recorded. Are you an attny?
No, I’m not an attorney. Note that foreclosure is public record and if it is scheduled for sale in 30 days it was on record months before you signed your lease. That doesn’t affect you much, but I’d highly recommend you check foreclosure status of a property before you sign a lease on your next place.
Very few properties are purchased by owner-occupants at the courthouse so you can likely stay to the end of your lease under the federal law outlined here. Note the buyer is NOT responsible for getting your deposit back for you, so make sure you work that out with the current landlord soon.