On May 20, 2009, the Helping Families Save Their Homes Act of 2009 was signed into law. A portion of this law, the Protecting Tenants at Foreclosure Act, provides protection to tenants from eviction as a result of foreclosure on the properties they are renting. These provisions took effect on May 20, 2009, and were scheduled to expire on December 30, 2012, however, the expiration date was extended to December 31, 2014, by the provisions of the Dodd-Frank Act, but was allowed to expire on December 31, 2014. With passage of Senate Bill 2155, the Economic Growth, Regulatory Relief and Consumer Protection Act, the tenant protections of the Protecting Tenants at Foreclosure Act have been permanently restored.
The tenant protection provisions apply in the case of any foreclosure on any loan secured by a lien on 1-to-4 family residential real property, including individual units of condominiums and cooperatives. They provide that “any immediate successor in interest” in such a foreclosed property, including a bank that takes title to a house after foreclosure, will assume the interest subject to the rights of any bona fide tenant and certain notice requirements. The fundamental purpose of the Act is to ensure that tenants facing eviction from a foreclosed property have adequate time to find alternative housing.
Under the law, the immediate successor in interest at foreclosure must: (a) provide bona fide tenants with 90 days notice prior to eviction; and (b) allow bona fide tenants with leases to occupy property until the end of the lease term, with two exceptions: (1) where the property is sold after foreclosure to a purchaser who will occupy the property as a primary residence, and (2) where there is no lease (or where the lease is terminable at will under state law). However, even when these exceptions apply, tenants must still receive 90 days’ notice before they may be evicted.
A lease or tenancy is bona fide if the tenant is not the mortgagor or the parent, spouse, or child of the mortgagor, the lease or tenancy is the result of an arm’s-length transaction, and the lease or tenancy requires rent that is not substantially lower than fair market rent or is reduced or subsidized due to a Federal, State or local subsidy. The law does not cover tenants facing eviction in a non-foreclosed property, tenants with a fraudulent lease, tenants who enter into lease agreements after a foreclosure sale, or homeowners in foreclosure.
The Dodd-Frank Act also revised the Tenants Protection Act by adding a definition for the date of a notice of foreclosure. A major change in the Tenants Protection Act brought about by Dodd-Frank involves the interpretation of the provision allowing a bona fide tenant of foreclosed property to continue to reside at the property for the remaining term of the lease executed with the former owner only if that lease was entered into “as of the date of foreclosure.” Under this language, it had been argued that the “date of foreclosure” was commensurate with the date on which foreclosure notices were sent, thereby preventing tenants from entering into leases that would have to be honored once the foreclosure notices were mailed and advertised. The Dodd-Frank Act now provides that the “date of a notice of foreclosure” shall be deemed to be the date on which complete title to a property is transferred to a successor entity or person as a result of an order of a court or pursuant to provisions in a mortgage, deed of trust, or security deed. While some ambiguity may continue to exist under this language, it is now clear that “date of a notice of foreclosure” does not mean any correspondence or advertising undertaken by the lender in advance of the foreclosure sale.
Debate will no doubt ensue regarding when “complete title to a property is transferred to a successor.” This could be at the time of the foreclosure sale, at the time of recording or at the time of delivering the foreclosure deed. In this regard, the provisions of Neb.Rev.Stat. § 76-1010(2) provide, in part, that “The trustee’s deed shall operate to convey to the purchaser, without right of redemption, the trustee’s title and all right, title, interest, and claim of the trustor and his or her successors in interest and of all persons claiming by, through, or under them, in and to the property sold, including all such right, title, interest, and claim in and to such property acquired by the trustor or his or her successors in the interest subsequent to the execution of the trust deed.”