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.

Articles

Stop Shutting the Door on Renters: Protecting Tenants from Foreclosure Evictions (May 2010)

This Cornell Journal of Law and Public Policy article discusses existing and proposed federal and state laws affecting tenants’ rights in foreclosure.

Agencies Begin Implementing the Protecting Tenants at Foreclosure Act (Oct. 2009)

This October 2009 Housing Law Bulletin updates readers on actions taken by the Federal Reserve, the Office of Comptroller of the Currency, the National Credit Union Administration, the Office of Thrift Supervision, and the National Association of Realtors. The article also discussed floor statements regarding the purpose of the act by Senators Dodd and Kerry.

Interpreting the Protecting Tenants at Foreclosure Act: Case Law and Future Litigation (Aug. 2010)

This August 2010 Housing Law Bulletin summarizes recent case law interpreting the Protecting Tenants at Foreclosure Act.

Renters Evicted en Masse: Collateral Damage Arising from the Subprime Foreclosure Crisis (Sept. 2010)

This Florida Law Review article discusses the Protecting Tenants at Foreclosure Act and suggests improvements to the law.

Protecting Tenants at Foreclosure Act: An Overview of the New Federal Law and Its Application (Jan.-Feb. 2011)

This Clearinghouse Review article serves as an advocate's guide on the Protecting Tenants at Foreclosure Act

Cases

Bank of N.Y. Mellon v. De Meo, 254 P.3d 1138 (Ariz. App. 2011)

In a case of first impression, the appellate court held that the Protecting Tenants at Foreclosure Act requires post-foreclosure owners to serve a tenant with an unambiguous 90-day written notice before it may move forward with an eviction action.

Bank of Am. N.A. v. Owens, 903 N.Y.S.2d 667 (City Ct. 2010)

A post-foreclosure owner may not require tenants to prove bona fide tenancy within five days to avoid its obligation to provide 90-day notice under the PTFA. If the owner has not provided the required 90-day notice, the burden is then on the owner to demonstrate that a property resident is not a bona fide tenant.

Southland Home Mortg. v. Valle (In re Valle), No. 10-15196, 2011 WL 722388 (Bankr. S.D. Cal. Feb. 16, 2011)

In this case, the bankruptcy court denied the bank's motion for relief from the automatic stay because the tenant's lease remained valid under the Protecting Tenants at Foreclosure Act as amended by the Dodd-Frank Act.

RWW Properties v. Stepanoff, No. N10-0072 (Cal. Super. Ct. App. Div. May 25, 2010)

The decision of a California Superior Court judge who allowed a tenant to be evicted after only 30 days notice after foreclosure on the basis that the PTFA only applied to federally related mortgages was reversed on appeal.

Alta Cmty. Invs. III v. Ottoboni, No. 1370195 (Cal. Super. Ct. July 29, 2010)

In this tentative ruling, an eviction based on a 3/30/60/90 day was dismissed for failing to give proper notice. The court ruled that the notice is equivocal/ambiguous and thus was not effective to terminate the tenancy.

E Trade Bank v. Salter, No. 1372298 (Cal. Super. Ct. Jan. 20, 2011)

In this tentative ruling, the court dismissed the eviction based on a 3/60/90 day notice because the notice required any tenants to provide proof of tenancy within three days. The court held the notice to be equivocal because the notice period would vary depending on what steps an occupant takes in response to the notice.

PD Realty, LLC v. Azevedo, No. 11H84SP000071, 2011 WL 481489 (Mass. Hous. Ct. Feb. 3, 2011)

In this case, the court held that a tenant occupying an illegal unit may still be a bona fide tenant under the PTFA.

Fed. Nat'l Mortgage Assoc. v. Dobson, No. 10-CVG-02140 (Ohio Mun. Ct. Mar. 1, 2010)

Unless proven otherwise, an existing tenant is presumed to be a bona fide tenant protected under the PTFA.

Materials

Sample letters for tenants & advocates to use to implement Protecting Tenants at Foreclosure Act and Notices to explain the act.

•Sample letter to send to Public Housing and Section 8 HCV Administrators
•Sample Letter for Section 8 Tenant to Send to New Owner
•Sample Letter for Non Section 8 Tenant to Send to New Owner
•Sample Notice for Tenants to be handed out by the Landlord Tenant Court, Local Legal Service Office, Public Housing Authorities or other housing advocates
•Sample letter to Judge

Brief Bank for HJN Members

This pleadings bank includes materials to assist advocates defend tenants in post-foreclosure evictions. There are also affirmative complaints seeking compensation for damages that result from post-foreclosure evictions and lockouts.

Trainings and Webinars

• Webinar: Tenants in Foreclosure: New Federal Protections (June 2009)
• Webinar for Lenders on Protecting Tenants at Foreclosure Act (Sept. 2009)
• Webcast: Defending Unlawful Detainers: Training Pro Bono Attorneys to Help Families Avoid Homelessness (Oct. 2010), which discusses the PTFA as a part of a longer program on eviction defense in California
• PowerPoint presentation on the PTFA and related California notice laws (Mar. 2011)

Statutes and Regulations

Protecting Tenants at Foreclosure Act of 2009 (PTFA)

• Text of the Protecting Tenants at Foreclosure Act of 2009 as clarified and extended by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Pub. L. No. 111-22, div. A, tit. VII, §§ 701-704, 123 Stat. 1632, 1660-62 (enacted May 20, 2009), as amended by Pub. L. No. 111-203, tit. XIV, § 1484 (July 21, 2010)

Federal Agencies' Guidance on Protecting Tenants at Foreclosure Act

• Department of Housing and Urban Development (HUD) Notice of Responsibilities Placed on Immediate Successors in Interest Pursuant to Foreclosure of Residential Property (June 24, 2009) and Guidance on Notification Responsibilities Under the Act With Respect to Occupied Conveyance (Oct. 28, 2010)
• Federal Reserve System Consumer Affairs Letter (July 30, 2009)
• Office of the Comptroller of the Currency (OCC) Bulletins 2009-28 (Aug. 2009), 2010-2 (Jan. 2010), 2011-15 (May 2011), and 2011-49 (Dec. 2011).
• National Credit Union Administration (NCUA) Regulatory Alert (Aug. 2009)
• Office of Thrift Supervision (OTS) Memorandum (Sept. 2, 2009)
• FDIC Financial Institution Letter (Sept. 28, 2009)

Links

National Low Income Housing Coalition

NLIHC has a web page dedicated to Renters in Foreclosure, with links to articles and research related to tenants and foreclosure.

Tenants Together: California Statewide Organization for Renters’ Rights

Among their other resources, Tenants Together offers an annual report on California Renters in the Foreclosure Crisis and a hotline for California tenants in foreclosure situations.

REO Rental Policies

Fannie Mae’s national REO rental policy
Freddie Mac’s rental policy initiative
Deutsche Bank Memorandum on Laws, Rules and Regulations in Connection with Foreclosures on Securitized Assets (August 30, 2007)
Tenants Together's compilation of banks' policies as post-foreclosure landlords (Nov. 2010)

National Law Center on Homelessness and Poverty

National Law Center on Homelessness and Poverty published Staying Home: The Rights of Renters Living in Foreclosed Properties (June 2010), a report explaining the Protecting Tenants at Foreclosure Act and summarizing state laws that protect tenants in foreclosed properties.