The foreclosure crisis affects almost as many renters as homeowners. When landlords default on their mortgages, innocent tenants often end up evicted. Research by the National Low Income Housing Coalition shows that 40% of households facing eviction are renters.
Prior to May 2009, tenants whose rentals were the subject of a foreclosure almost always lost their leases when the property was sold to a new owner. That’s because in most states, a mortgage that was recorded before a lease was signed wiped out the lease upon foreclosure. (In the unusual instance where the lease pre-dated the mortgage, the lease might have survived.) But as of May 20, 2009, the Helping Families Save their Homes Act changed the rules. In the portion called “Protecting Tenants At Foreclosure” (“PFTA”), the law for all states became quite simple: As long as the lease was signed before the notice of foreclosure (the date the title was transferred to a new owner), the lease would survive. Two “but ifs” apply, however:
Tenants with month-to-month rental agreements are entitled to 90 days’ notice, which is longer than the notice period they would normally receive in a non-foreclosure termination (most states provide for 30 to 60 days).
Section 8 tenants and those in “just cause” eviction protection jurisdictions (rent control cities and some states) cannot be evicted on 90 days’ notice. Section 8 tenants get to live out the length of their lease, even if the new owner wants to live in the property. Both Section 8 tenants, and those protected by just cause protections, can be evicted only for reasons that fit within the list of just causes, as enumerated in the Section 8 Addendum or the rent control ordinance.
In spite of clear direction in the federal law, many lenders and agents (including their lawyers) disregard PFTA’s terms. Commonly seen violations include:
Many states have added more protections for tenants who are caught in foreclosure. These laws typically cover issues like:
For more information on state protections, begin with the National Low Income Housing’s analysis, Staying Home: The Rights of Renters Living in Foreclosed Properties. Be sure to look further if this publication has not been updated since its publication in June, 2010.