(More from our "Watch for Change" series . . . .)
As you know, the "new" economy is prompting a wide range of new laws and ordinances, all of which present opportunities for the unwary to trip up and mess up in the collection process.
This posting will interest you if any of your collateral involves residential real property.
While this posting is written from a Texas perspective, the concept applies to all states—because the new Federal law applies to all states.
Thanks to Vince Marino of Winstead PC for this information, which was published in the Houston Business Journal on July 17, 2009.
If you have any questions or comments, please post them.
New Federal Foreclosure Law Gives Residential Tenants 90 Days to Vacate
In May 2009, President Barack Obama signed a new law called the “Protecting Tenants at Foreclosure Act of 2009,” the provisions of which were part of a much longer 72-page law known as the, “Helping Families Save Their Homes Act of 2009.”
One part of this new federal law causes an important change in Texas local law on foreclosures and the rights of a tenant after a foreclosure.
Effective immediately (i.e. for foreclosures occurring after May 20, 2009) and relating to certain “federally related mortgage loans” and any loans on dwelling or residential real property, the purchaser at a foreclosure sale is required to provide a bona fide tenant at least 90 days’ notice before the tenant has to vacate. The new law is national in scope so tenants, no matter what state they live in, now have time to adjust their lives.
As a general rule, the new law requires any immediate successor-in-interest in property foreclosed upon to assume the property subject to the rights of a bona fide tenant under a bona fide lease until the end of the remaining term of the lease. There are exceptions to this general rule — such as the lease must be in existence as of the date of the notice of foreclosure, for example.
If a tenant is in possession of the property foreclosed upon without a lease or with a lease that is “terminable at will,” the purchaser at foreclosure merely has to give the occupant 90 days’ notice to vacate.
In all of the above instances, the foreclosing party can still evict a tenant who is not paying rent or is otherwise in default under his lease.
In Texas, if a mortgage was executed before the lease was executed, or if the lease was executed before the mortgage, and the lease contained a subordination provision making the lease subordinate and the mortgage superior in right, Texas law recognized that, after a foreclosure, such a tenant under such a lease would be a “tenant at will.”
Even with the new federal legislation, it would arguably appear that, under such circumstances, and based on the tenant being a tenant at will, a successful bidder at a Texas foreclosure would not have to honor the lease for the duration of its remaining term, but could instead terminate it with a 90-day notice to vacate.
Note that even under Texas law before this new federal legislation, if a home was purchased at a foreclosure sale under a lien superior to the tenant’s lease and the tenant paid rent on time and is not otherwise in default under the tenant’s lease after foreclosure, the purchaser was required to give the tenant at least 30 days written notice to vacate if the purchaser chose not to continue the lease. So, in this instance, the new federal law imposes a longer notice period in Texas.
Following a foreclosure, the new law says that if the tenant has no lease, he has to vacate within 90 days after receipt of a notice to vacate (which notice might be able to be given even before the foreclosure), or if there is a lease, a bona fide tenant can stay in possession for the remainder of the term pursuant to such tenant’s lease. But if the lease is “terminable at will” under state law, or if a purchaser from the successful bidder at foreclosure will occupy the property as his primary residence, the tenant must nevertheless vacate — but such tenant is entitled to receive a 90-day notice to vacate.
There is a provision in the statute that says nothing in the statute shall affect the requirements for termination of any federal or state-subsidized tenancy or of any state or local law that provides longer time periods or other additional protections for tenants.
The new foreclosure provisions only affect tenant-occupied properties that are being foreclosed upon and has no effect on mortgagor-occupied properties.
The new legislation represents a big change to the law in Texas. Where we previously had scattered state laws, now we have one national statute. The law sunsets on December 31, 2012.