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The Foreclosure Crisis and Its Impact on Tenants
There are estimates that nationwide as many as 40% of the families that face eviction due to foreclosure are renters. Depending upon the local market, this percentage may vary. The consequences for tenants residing in properties that have been foreclosed upon are often dramatic, and may include lease termination, eviction without proper notice or a reason other than the unit has been foreclosed upon, the loss of the tenant’s security deposit, deterioration of property conditions and utility shutoffs. Tenants also face costs of relocation, finding a new home, possible loss of a Section 8 voucher or other rental assistance, an eviction complaint which may affect their credit or the ability to lease another unit, and possible disruption of education, employment, medical treatment and social support networks.
Congress has responded to the crisis in a dramatic and strategic fashion. The Protecting Tenants at Foreclosure Act (PTFA), enacted and effective May 20, 2009, requires that owners acquiring property through foreclosure honor existing leases. Tenants with term leases may not be evicted until the end of their lease terms and not without a 90-day notice. There is one variation on this rule. The new owner who seeks to occupy the unit as a primary residence may terminate the lease with a 90-day notice. A new owner must provide a 90-day notice to tenants with no leases or leases terminable at will. The act also provides additional protections for Section 8 tenants.
Recently, Congress clarified and extended the PTFA in the Dodd-Frank Wall Street Reform and Consumer Protection Act, which the President signed into law on July 21, 2010. Section 1484 of the Act clarifies that notice of foreclosure means, “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.” The Dodd-Frank Act therefore confirms that the PTFA protects all bona fide tenants that entered, or will enter, into a lease agreement before the transfer of complete title to the new owner. Originally the law governed foreclosures until December 31, 2012, but the Dodd-Frank Act extends that date to December 31, 2014.
State law responses to the effect on tenants of the foreclosure crisis have varied and include providing tenants in foreclosed properties with increased notice before eviction, requiring entities that purchase property at foreclosure sales to maintain the property, requiring utility companies to continue to provide utilities post foreclosure, and requiring the new owner to be responsible for the tenant’s security deposit. In addition, in jurisdictions requiring just cause to evict, state and local laws have been interpreted to prevent eviction due solely to a foreclosure and, recently, have been expanded to cover all foreclosed upon units.
Special Circumstances are related to HUD/FHA Occupied Conveyance Policy Notices.