The National Low Income Housing Coalition (NLIHC) estimates that renters represent as many as 40 percent of the families who will lose their homes in the foreclosure crisis.1 Tenants often have no idea that their homes are in foreclosure and, until recently, had no rights in most states and could be evicted on short notice in as little as three days in some places.2 On May 20, 2009, President Obama signed into law the Protecting Tenants at Foreclosure Act (PTFA). Under the act, tenants in foreclosed properties throughout the country have at least 90 days after foreclosure to find another place to live.
The new law requires the immediate successor in interest at foreclosure to provide bona fide tenants with 90 days’ notice before requiring them to vacate the property and allows tenants with leases to occupy the property until the end of the lease term.3 If the property is purchased by someone who will occupy the property, then that purchaser can terminate the lease on 90 days’ notice. Tenants with Section 8 housing choice voucher assistance have additional protections that allow them to retain their Section 8 lease and require the successor in interest to assume the housing assistance payment contract associated with that lease. These provisions will expire at the end of 2012.
There are several key ideas and terms that are important to understanding the PTFA. First, the PTFA applies to all foreclosures on all residential properties; traditional one-unit single-family homes are covered, as are multi-unit properties. The law applies in cases of both judicial and nonjudicial foreclosures, and it applies even if the foreclosure process in a given state requires that known tenants be named in the foreclosure, as in Pennsylvania, or be notified of the foreclosure filing, as in Delaware.
Second, tenants with lease rights of any kind, including month-to-month leases or leases terminable at will, are protected as long as the tenancy was in effect as of the date of transfer of the title at foreclosure.
Third, the 90-day notice to vacate can only be given by the successor in interest at foreclosure. The “successor in interest” is whoever acquires the title to the property at the end of the foreclosure process. It could be the financial institution that held the mortgage, or it could be an individual who purchased the property at foreclosure. The 90-day notice to vacate can only be given after the foreclosure is complete, and the title has transferred. Notices of the pending foreclosure, while desirable, do not serve as the 90-day notice required by the PTFA.
Fourth, the relationship between the PTFA and applicable state and local law is important. The PTFA specifically indicates that it does not affect “any state or local law that provides longer time periods or other additional protections for tenants.” Consequently, in states such as New Jersey where there are strong tenant protections and tenancies survive foreclosure, the PTFA may provide few additional protections.4 In other states, the relationship between the PTFA and state and local law may be more complicated; therefore, state law should be examined to maximize the protections available to tenants. State and local law may also help fill some of the gaps in the federal law, such as the form (e.g., written or oral) and delivery mechanism for the 90-day notice (e.g., in person, by mail, or by another method).
Implementing the PTFA provisions can be challenging. The law was effective upon enactment, and no federal agency is charged with interpreting the law or with writing regulations to enforce it. Because the law is self-implementing, individual tenants if challenged need to be able to assert their rights. The NLIHC has developed a toolkit for renters in foreclosed properties.5 The toolkit contains sample letters, copies of the PTFA, and other materials designed to assist tenants and their advocates in implementing the law and protecting tenants’ rights.
Relying on individual tenants to assert their rights is a time-consuming process. A better approach is for the entities and institutions involved in the foreclosure process financial institutions, lawyers, judges, and real estate professionals to recognize and abide by the law. Advocates at the local level should make area courts and attorneys aware of the law through letters and other contacts.
All federally insured or chartered financial institutions have been informed of the law and instructed to comply with it.6 If a financial institution does not comply with the law, it is important that advocates identify the foreclosing institution and hold it accountable for the outcome. Federal financial institution regulators have information on their websites that will help identify the relevant regulator for a foreclosing institution and help tenants and advocates lodge a complaint against the institution.7
Prior to creation of the PTFA, some financial institutions and Freddie Mac and Fannie Mae independently developed programs to assist renters in foreclosed properties to remain in their homes and offered “cash for keys” programs that provide monetary assistance to occupants of foreclosed properties if the occupants agree to leave in a specified period of time, usually 30 days or less.8
While both the month-to-month lease programs and “cash for keys” program are options that tenants should consider, these options are in addition to, and not a substitute for, the rights provided under the PTFA. Tenants should seek the advice of counsel before accepting options that conflict with their rights under the PTFA.