There is Good News for Renters!
A federal law may provide them with more security and peace of mind when their landlords fail to pay their mortgage.
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Fortunately, a federal law helps protect the rights of tenants in properties facing foreclosure, say experts at the Office of the Comptroller of the Currency (OCC). The Protecting Tenants at Foreclosure Act of 2009 establishes national standards to provide renters sufficient notice when foreclosure happens.
The Protecting Tenants at Foreclosure Act protects tenants from eviction because of foreclosure on the properties they occupy. These provisions took effect on May 20, 2009, and originally were scheduled to expire on December 31, 2012. However, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) changed the expiration date to December 31, 2014.
The tenant protection provisions apply in the case of any foreclosure on a “federally related mortgage loan” or on any dwelling or residential real property. They provide that “any immediate successor in interest” in such a foreclosed property, including a bank that takes title to a house upon foreclosure, will assume the interest subject to the rights of any bona fide tenant and will need to comply with certain notice requirements.
Under this law, the immediate successor in interest of a dwelling or residential real property must provide tenants with a notice to vacate at least 90 days before the effective date of such notice.
The date of a “notice of foreclosure” is defined as the date on which complete title to a property is transferred to a successor entity or a person as a result of a court order or pursuant to provisions in a mortgage, deed of trust, or security deed.
Tenants also must be permitted to stay in the residence until the end of their leases, with two exceptions:
- When the property is sold after foreclosure to a purchaser who will occupy the property as a primary residence or,
- When there is no lease or the lease is terminable at will under state law.
The protections of this law apply to tenants under a “bona fide” lease or tenancy. A lease or tenancy is “bona fide” only if:
- The mortgagor or a child, spouse, or parent of the mortgagor under the contract is not the tenant;
- The lease or tenancy was the product of an arm's-length transaction; and
- The lease or tenancy requires the receipt of rent that is not substantially less than fair market rent or the rent is reduced or subsidized due to a federal, state, or local subsidy.
Some tips on how to prove you are in good standing include:
- Sign a written lease.
- Pay your rent on time and in full.
- Use checks rather than cash to provide a record of payment.
- Pay your rent at the market rate. Paying a lower rent to a friend or family member will cut your costs, but may weaken your legal standing during a foreclosure or legal dispute.
- With all legal matters, the OCC encourages you to consult a lawyer.
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