Understanding Your Rights: Tenants Following the Landlord’s Foreclosure

Understanding Your Rights: Tenants Following the Landlord’s Foreclosure

In the wake of the U.S. foreclosure crisis, and as part of the Helping Families Save Their Homes Act of 2009, congress enacted the Protecting Tenants at Foreclosure Act (“PTFA”).  This relatively unknown piece of legislation has significant importance to tenants of property that is foreclosed.  Legislative history of the PTFA reveals that “for too long, tenants have been the innocent victims of the foreclosure crisis. Countless tenants across the country have been forced to leave their homes simply because their landlords were unable to pay their mortgages.”

The PTFA prevents tenants from being evicted from the property immediately following a foreclosure sale.  The length of the tenant’s right to remain in the property is determined by the buyer’s intent to occupy the property as their primary dwelling.

Buyer Intends To Occupy
If the buyer intends to occupy the property as their primary dwelling, then the tenant has the right to stay in the property until they receive a 90-day notice to vacate before the effective date of the notice. So the soonest a tenant can be required to vacate is 90-days following the foreclosure sale.  To be more precise, the new owner cannot serve a 90-day notice until they actually own the property–or after the trustee’s deed has been recorded with the county recorder.  A notice prior to the sale or prior to the recordation is presumably void.  It is possible that the new owner’s trustee’s deed is recorded on the same day of the trustee’s sale, but this is unusual.  Under Utah Code Section 57-1-28(2), the trustee must provide the buyer a trustee’s deed for recordation withing 3 business days. Therefore, it will normally take about a week after the sale before the trustee’s deed is recorded.

Buyer Doesn’t Intend to Occupy
The tenant’s right to occupy the property when the new owner doesn’t intend to occupy the property as their primary dwelling is substantial.  The tenant is entitled to remain in the property for the remainder of the current term of the lease.  Weekes Law has successfully defended a lease with a 7-year term!  While anyone is able to bid at a foreclosure sale (including the foreclosed mortgagor), the bank is the most frequent buyer at trustee’s sales.  That means in the overwhelming majority of cases, the tenant is entitled to remain in the property during the current term of the lease.

Requirements of Protecting Tenants at Foreclosure Act
For the PTFA to apply, the lease must be bona fide.  All leases or tenancies under PTFA are bona fide if:

(1) the tenant is not the mortgagor or the child, spouse, or parent of the mortgagor;
(2) the lease or tenancy was the result of an arms-length transaction; and
(3) the lease or tenancy requires rent that is not substantially less than fair market rent for the property.

Because of the relative ease to meet PTFA’s definition of bona fide, nearly all residential leases qualify under PTFA.  While there is scant case-law interpreting PTFA, courts that have addressed the issue overwhelmingly find in favor of the tenant.

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