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Foreclosure Landlord Tenant Lease PTFA

Foreclosure Landlord Tenant Foreclosure PTFA

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The Landlord owns a property until the day the property transfers to the new owner. The Landlord or Owner may occupy, use, lease or sell property as he or she sees fit unless the mortgage and note have some restriction. There are often restrictions like this in large building commercial mortgages but it is rare to find such restrictions in the majority of residential mortgages such as a single home or duplex.     About half of the persons facing eviction due to a foreclosure are renters. However the law has changed for most renters. Under the old law a foreclosure would end a lease.

The Helping Families Save Their Homes Act went into effect in 2009. This law included the Protecting Tenants at Foreclosure Act (PTFA) PFTA requires that any new owner takes the foreclosed property subject to the rights of the lease and tenant. A lease or tenancy is bona fide under Section 702 of the PTFA if: (a) a tenant is not the mortgagor or the mortgagor’s child, spouse, or parent; (b) the lease resulted from  an arm’s length transaction; and (c) the rent is not substantially less than the fair market rent, unless the reduction is due to a federal, state or local subsidy.

Bona fide tenants may continue to occupy property until the end of a lease unless the lease is at will or the property is sold to a purchaser who intends to occupy the unit as a primary residence. In those cases a 90 day notice must be given. Tenants with Section 8 vouchers are also protected. The statute also requires that any eviction notices must also be sent to the Housing Authority. If the individual rents from a corporation the lease is still protected. PFTA entitles tenants to a 90 day notice to quit. Longer-term leases must enter into the lease before “notice of foreclosure. Dodd Frank defines this “Notice of foreclosure,” as the date the foreclosure sale transfers the title.

Landlord and Tenant Rights and Responsibilities

There are two main rules:

  1. The tenant must pay rent to remain in the property. If the tenant does not pay rent, it probably constitutes an independent ground for eviction. The new owner merely steps into the shoes of the old owner. The failure to comply with a clause or provision of the lease, can be grounds for eviction.
  2. The landlord must give 90 days notice to evict and refund the tenants deposit even if rent is not paid.

It is understandable that a tenant can be confused and not know which landlord to pay. But the failure to safeguard the funds even if the new landlord will not take the rent is probably a breach of the lease. The new owner has the same rights and responsibilities as the prior landlord. If utilities, heating, or services are supplied, the new owner must do so. Further the security deposit has to be refunded. Even if the tenant does not pay rent during the 90 day notice to vacate the new owner can generally not evict. Sections 702 and 703 of the PTFA each require the tenant be given notice to vacate “at least 90 days before the effective date of such notice. Even if the lease is month to month a 90 day notice is required. Bank of N.Y. Mellon v. DeMeo,254 P.3d 1138(Ariz. App. 2011), published and unanimous decision. See also Curtis v. U.S. Bank National Association  ••confusing (language)” is “ineffective for the purpose of the PTFA” and further any motion for possession is premature if it is filed before the expiration of the PTFA notice period.

PTFA does not specifically say that the tenant has a duty to pay rent but courts have stated that upon the transfer of the deed that the new owner has the right to rent and that until that time the old owner collects and manages the property. PNMAC Mortgage v. Stanko but  even if the tenant has not paid rent to the new landlord  the tenant is entitled to the 90-day notice period under the PTFA. Two state trial courts have held PTFA’s 90-day notice requirement applies to post-foreclosure evictions even if the tenant fails to pay rent. Courts have concluded PTFA’s longer notice period, which makes no distinction between terminations with or without cause preempts the requirement of a 90 day notice. In Stanko, the court held PTFA’s 90-day notice period “is inviolable no matter what theory of eviction a foreclosing party has available to it.” The new owner assumes the lease “subject to and conditioned upon. providing the tenant a notice to vacate ‘at least 90 days before the effective date of such notice….”

PFTA is an affirmative defense but the burden of proof of the plantiff that the laws have been complied with normally make it the plaintiff’s burden of proof that the law has been complied with and that a lease exists. Several factors such as the amount of the rent, relationship to the landlord, nature of the property, timing of the lease, term of the lease, number of people in the property, to determine if the tenant entered into an arms length contract. In  U.S. Bank v. Love, No. CLJ 201704, at *3-4 (Cal. Sup. Ct. July 30, 2012). The court awarded $112,896.00 against US Bank for wrongful eviction. The court stated:

“it is her ouster from possession during that remaining 10 month and one week period that the Appellate Department has now ruled was wrongful, said ruling being on the grounds that the Judge Pro Tern in the Unlawful Detainer trial committed error in failing to accord Ms. Costello the protection of the Protecting Tenants At Foreclosure Act of 2009 (Public Law 111-.22,701 -704, enacted May 20, 2009) 42 U.S.C. 1437f(O) (7) (hereafter “PTFA Act,,).fu3 I.e., under that Act, U.S. Bank, as a matter of Federal law, took ownership subject to Ms. Costello’s remaining lease and, accordingly, U.S. Bank was not entitled to any Judgment of Possession against her. The Act was part of certain emergency legislation to address the residential mortgage crisis that has beset the nation during the past few years’ depressed economy, the worst since the Great Depression of the 1930’s.”

Faced with foreclosure as a Landlord or Tenant with a Lease under PTFA in Louisville Kentucky see Nick Thompson.