Federal Law Protects Renters from Foreclosure

A temporary federal law gives renters some protections against getting evicted from their homes when a bank forecloses on their landlord. The “Protecting Tenants at Foreclosure Act” is short—only two pages—and simple: after the completion of a foreclosure of a home or apartment building, the new owners of the property must allow  renters to continue staying there for either 90 days or through the end of their lease, whichever is longer. So even with a month-to-month rental, the renter would be allowed to stay for 90 days after the foreclosure. Of course have to pay rent and fulfill their side of bargain while they remain on the property.

Why has this been a problem? The public focus during this long foreclosure crisis has been on the millions of homeowners losing their single family homes. But many of these homes are in fact rented out to others. And there are also many foreclosures of multiunit residences—everything from duplexes to apartment buildings. In fact research by the National Low Income Housing Coalition estimated that “renters represent as many as 40% of the American families who will lose their homes in this crisis.”

While homeowners have long had an established set of protections during the foreclosure process, renters have had virtually none. Renters often had no idea that their landlord had fallen behind on mortgage payments and that their home was being foreclosed.  They found out only after the foreclosure sale had occurred and the bank or the new owner shocked them with eviction papers. The “Protecting Tenants at Foreclosure Act” provides at least a modest cushion of time in almost all situations, and the right to the full term of their lease for tenants who bargained for such longer leases.

This straightforward law contains very few exceptions. It does not apply if the tenant is also the owner of the property being foreclosed, or the owner’s spouse, child, or parent. The rental agreement must be genuine, and must provide for payment of rent at about fair market value (or with a legitimate governmental subsidy). Also, if after the foreclosure the new owner intends to live in the home as his or her primary residence, then the tenant must surrender the property after 90 days even he or she has a longer term.

This law is temporary in that it was to expire at the end of 2012. Last year’s financial reform law has extended that expiration to the end of 2014.

Maybe the most important part of the “Protecting Tenants at Foreclosure Act” is that it sets a threshold standard, but also explicitly states that it shall not “affect the requirements… of any State or local law that provides longer time periods or other additional protections for tenants.” During these last two years many states have recognized the need for tenant protections. If you are a tenant in a house or apartment that you are afraid is being foreclosed upon, contact our office to set up a consultation to discuss this and any other financial concerns you may have.