With the collapse of the housing market and stock markets during this “Great Recession,” Congress has passed a number of consumer protection related laws in the past two years. One such law has fundamentally changed the regulations related to leases and foreclosure. The long-standing law in most jurisdictions was that the rights of tenants under leases were extinguished by the foreclosure of a mortgage or deed of trust if their lease was later in time that the deed of trust. Hence, tenants had to move out of a home that had been foreclosed upon, even if they had been abiding by the terms of the lease and making all required payments to their landlord.
With the drastic rise in the number of foreclosures nationwide, Congress passed the “Protecting Tenants at Foreclosure Act of 2009,” completely changing the rules for tenants. Under this new act, regardless of when the lease in question was signed (either before or after the date of the subject mortgage or deed of trust), the tenants under that lease would be allowed to occupy the property after foreclosure under the following conditions. If the purchaser at the foreclosure sale is a third party who intends to live in the foreclosed property as a primary residence, or if the tenant is occupying the property without a written lease in place, then the new owner may terminate the lease upon a ninety (90) day written notice to said tenant. If, however, the purchaser of the property at the foreclosure auction is any other party, whether an investor or the financial institution holding the note on the property, then the tenant may continue to occupy the property under the terms of the lease for the remainder of the lease term.
This legislation has allowed leases that previously would have been extinguished by a foreclosure survive the foreclosure, and to thereby enforce the terms of those leases upon the new title holder for the remainder of the lease term.
For further questions regarding buying property at foreclosure auctions, or for any other real estate related questions, contact Bernie Meyer, Joe Perini or Joe Hall.
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