This website does not provide legal advice.  It is for informational purposes only. Please do not act or refrain from acting based on anything you read on this site. The information contained in this web site, article or link may be outdated, incorrect or not applicable; it is your obligation to confirm the accuracy. Using this site or communicating with Law Office of D.L. Drain, or any agent/employee of our firm, through this site does not form an attorney/client relationship. This site is legal advertising. Please review the full disclaimer for more information.

It is very important that you obtain legal advice from an experienced attorney regarding your particular situation. Consultation before you take action will certainly cost you less than it will cost to fix your unintentional errors.

TENANTS AND TRUSTEE SALES OR FORECLOSURES

IMPORTANT: THIS FIRM MAKES NO REPRESENTATIONS AS TO THE ACCURACY OR CURRENT STATUS OF ANY LAW, CASE, ARTICLE OR PUBLICATION CITED HEREIN OR LINKED TO.

TENANTS AND TRUSTEE SALES OR FORECLOSURES

(As of May 28, 2018 this became permanent Federal law. Also see links at bottom to Arizona Landlord Tenant Act)

by Attorney Janet Portman Protecting Tenants in Foreclosure Act – Federal legislation signed in May 2009 gives important rights to tenants whose landlords have lost their properties through foreclosure. The mortgage industry crisis that started in 2006 has resulted in thousands — no, make that millions — of foreclosed homes. Most of the occupants are the homeowners themselves, who must scramble to find alternate housing with very little notice. They’re being joined by scores of renters who discover, often with no warning, that their rented house or apartment is now owned by a bank, which wants them out.

Hello Landlord is a free tool that helps tenants write to their landlords.

We surveyed tenants, landlords, social services, government agencies, lawyers, judges, and court staff to create Hello Landlord. We found that in most cases landlords are willing to work with tenants if they respectively reach out. Our free tool collects a series of details about your situation then generates a document for you to send to your landlord. Communicating with your landlord about missed rent or an apartment repair can help tenants avoid evictions.

Hello Landlord was created by LawX, the legal design lab at BYU Law School, the Innovation for Justice (i4J) Program at University of Arizona College of Law, and SixFifty, the technology subsidiary of the law firm Wilson Sonsini Goodrich & Rosati.

Renters who lose their homes to foreclosures don’t fit a single profile. Many of them live in smaller buildings, condos, and single-family homes. They’re located in cities and surrounding suburbs, in low-income and upscale neighborhoods. In short, foreclosed homes are everywhere, and they’re rented by people with widely varying incomes, including some with “Section 8” (federal housing assistance) vouchers.

The typical foreclosed home may have originally been owner-occupied, but more often it’s owned by investors and speculators who were hoping to profit from the rents. Caught between the slump in housing values and the rise of mortgage interest rates, these owners could not feasibly sell or extract enough rent to cover their monthly costs. In droves, they lost their investments. For example, in Minneapolis and its surrounding suburbs, 38% of the 2006 foreclosures involved rental properties; in Minneapolis alone, 65% were rentals.

When an owner defaults on a mortgage, the mortgage holder, often a bank, either becomes the new owner or sells the property at a public sale. If the bank becomes the owner, it may pay a servicing company to handle the property. But don’t expect close attention — these companies are focused on financial matters, not mundane things like maintenance.

Some renters find themselves with a new owner even before the foreclosure. Lawyers in Massachusetts, for example, contend that many new rental property owners are investment trusts that specialize in purchasing troubled loans directly from banks, then foreclosing, evicting, and selling.

Many tenants have no idea that their building has been taken at foreclosure. They continue to pay rent to the former owner, who often pockets the money but is hardly inclined to maintain the building it no longer owns. In the meantime, the new owners simply refuse to be landlords, never making repairs or even paying utility bills. Because the banks are stuck with increasing numbers of foreclosed properties that they can’t sell, they remain non-landlords for some time, making life impossible for their tenants until those tenants are evicted.

Renters in Foreclosed Properties No Longer Lose Their Leases Before May 20, 2009, most renters lost their leases upon foreclosure. The rule in most states was that if the mortgage was recorded before the lease was signed, a foreclosure wiped out the lease (this rule is known as “first in time, first in right”). Because most leases last no longer than a year, it was all too common for the mortgage to predate the lease and destroy it upon foreclosure.

These rules changed dramatically on May 20, 2009, when President Obama signed the “Protecting Tenants at Foreclosure Act of 2009.” This legislation provided that leases would survive a foreclosure — meaning the tenant could stay at least until the end of the lease, and that month-to-month tenants would be entitled to 90 days’ notice before having to move out (this notice period is longer than any state’s non-foreclosure notice period, a real boon to tenants).

An exception was carved out for the buyer who intends to live on the property — this buyer may terminate a lease with 90 days’ notice. Importantly, the law provides that any state legislation that is more generous to tenants will not be preempted by the federal law. These protections apply to Section 8 tenants, too.

Importantly, tenants who live in cities with rent control “just cause” eviction protection are also protected from terminations at the hands of an acquiring bank or new owner. These tenants can rely on their ordinance’s list of allowable, or “just causes,” for termination. Because a change of ownership, without more, does not justify a termination, the fact that the change occurred through foreclosure will not justify a termination.

New owners may want to terminate existing tenants because they believe that vacant properties are easier to sell. Common sense suggests otherwise. In many situations a building full of stable, rent-paying tenants will be more valuable (and command a higher price) than an empty building. Emptied buildings are also prone to vandalism and other deterioration – after all, no one is on site to monitor their condition. When entire neighborhoods become a wasteland of empty foreclosed multifamily buildings, their value drops even further. It’s hard to understand why new owners choose to pay lawyers to start eviction procedures instead of paying a modest fee to a management company to collect rent and manage the property while they wait to sell.

To encourage tenants to leave quickly and save on the court costs associated with an eviction, a few banks offer tenants a cash payout in exchange for their rapid departure. Thinking that they have little choice, many tenants — even Section 8, protected tenants — take the deal. It doesn’t help them much as they join the swelling ranks of newly displaced tenants (and former homeowners) who are competing to find an affordable new rental.

Thanks to the 2009 federal legislation, most tenants with leases will keep their leases, and month-to-month tenants will have at least 90 days to relocate. Tenants with leases have no legal recourse against their former landlords, because they are in the same position vis a vis the new owner as they were with the old: The lease survives and ends as it would had there been no foreclosure. Similarly, month-to-month tenants always know that they can be terminated with proper notice, and 90 days is longer than any state’s termination period.

However, a lease-holding tenant whose rental has been bought by a buyer who want to move in to the property ends up less fortunate than before the new law — he may lose his lease with 90 days’ notice, a result that probably would not have happened had the owner simply sold the property to a buyer who intended to occupy the property. (Normally, the new owner has to wait until the lease ends, absent a lease clause providing for termination upon sale, though such clauses may not be legal in all situations.)

Suing in Small Claims Court A lease-holding tenant who has to move out so that new owners may move in might consider suing their former landlord in small claims court. Here’s how it works.

After signing a lease, the landlord is legally bound to deliver the rental for the entire lease term. In legalese, this duty is known as the “covenant of quiet enjoyment.” A landlord who defaults on a mortgage, which sets in motion the loss of the lease, violates this covenant, and the tenant can sue for the damages it causes.

Small claims court is a perfect place to bring such a lawsuit. The tenant can sue the original landlord for moving and apartment-searching costs, application fees, and the difference, if any, between the new rent for a comparable rental and the rent under the old lease. Though the former owner is probably not flush with money, the awards in these cases won’t be very much, and the court judgment and award will stay on the books for many years. A persistent tenant can probably collect what’s owed eventually, that is unless the original landlord files for bankruptcy.

President Obama recently signed into law the Protecting Tenants in Foreclosure Act (S.896, P.L. 111-22). This federal law, which has already taken effect nationwide, extends protection to tenants in foreclosed homes. What are your rights under this law?

Q. If the property I am renting has been foreclosed on, can the new owners evict me right away?

A. No. The new law requires that tenants in foreclosed properties receive a 90-day notice prior to being evicted. Specifically, the new law requires that, in the event of a foreclosure, the new owner must allow tenants with leases to occupy the property until the end of the lease term. There are three exceptions to this rule:

The lease can be terminated on 90 days notice if the unit is sold to a purchaser who will occupy the property.

The lease has fewer than 90 days remaining.

The tenancy is month-to-month or a tenancy at-will, in which case the new owners must provide the tenant with 90 days notice prior to eviction.

Q. What can I do if the new owner says that I have to leave in fewer than 90 days?

A. New owners may not be aware of the new law. If they attempt to evict you without honoring your lease or providing the required 90-day notice, inform them by certified mail of The Protecting Tenants in Foreclosure Act, which became law on May 20, 2009, and applies to state eviction proceedings. Save the return receipt and a copy of the letter.

Q. What if I am a Section 8 tenant?

A. You have all of the rights listed above regarding your lease and the requirement that the owner give you a 90-day eviction notice. In addition, the new law protects tenants receiving federal assistance. If you are renting with Section 8 housing choice vouchers, your contract continues, and the foreclosure is not a lawful reason to terminate your lease. If you have additional questions, contact your local public housing authority.

Additional foreclosure-related resources are available at the Attorney General’s Foreclosure Resource Center located on the Arizona Attorney General’s web site.  There are several Internet sites offering to “help” with these issues.  Be very careful; as with all information on the Internet – do your own due diligence before relying on anything.

The relevant law is Arizona Revised Statutes Section 33-1331.  The part that seem s to apply to you is C (highlighted in yellow).  Warning – just because a landlord has an obligation to do something does not mean they will.

LINK TO STATUTE

FEDERAL PROTECTING TENANTS AT FORECLOSURE ACT

Stark & Stark Friday, August 21, 2015

IMPORTANT: THIS FIRM MAKES NO REPRESENTATIONS AS TO THE ACCURACY OR CURRENT STATUS OF ANY LAW, CASE, ARTICLE OR PUBLICATION CITED HEREIN OR LINKED TO.

In the aftermath of the 2008 financial crisis, one of the pieces of legislation that was intended to be considered “Main Street”-friendly, which is another way of referring to legislation that is supportive of locally owned small businesses and residences, was the Protecting Tenants at Foreclosure Act (“PTFA”).  In short, this statute provided protection for tenants who occupied residential real estate that was subject to mortgage foreclosure.The PTFA permitted any occupant who was a non-relative of a foreclosure defendant who occupied real estate under an arms-length, bona fide lease for fair rental value, to remain in the property for the balance of the lease term. If the lease did not have a fixed remaining term, occupants were allowed to remain in the property for 90 days before a foreclosing mortgagee could commence ejectment proceedings.

Despite its good intentions, unfortunately the PTFA wound up creating more problems than it solved before it was eventually retired at the end of 2014, because it effectively turned foreclosing lenders into reluctant landlords.  Even worse, there was very little case law, be it federal or state, that arose to properly interpret the PTFA, as its originally written provisions were less than clear, and any case law that did exist often varied from jurisdiction to jurisdiction.

By  Stark & Stark (reprinted with permission of author)

Click here for steps to your free bankruptcy consultation