The Protecting Tenants at Foreclosure Act

– Sean Gavin, Esq. –

On May 20, 2009, The Protecting Tenants at Foreclosure Act began effective.  This new Federal Law applies to foreclosures through December 2012.  Click here for the full text (scroll down to Title VII)

Who is Protected?

The Protecting Tenants at Foreclosure Act applies to foreclosures of all residential property. This includes all single family properties, multifamily properties, condos, and even mobile homes if the mobile home was attached to real estate and sold at a trustee’s sale.

What are the Protections?

The new Federal law allows tenants who are in residential leases to continue occupancy through the full term of their leases if the property is foreclosed. This applies unless the new owner intends to use the property as her primary residence. The new owner is the buyer at the trustee’s sale, which, in California, is often the lender. If the new owner intends to use the property as her primary residence, the new owner must still give the tenants a 90 Day Notice to Vacate.  The 90 days begins when the new owners serves the tenant with the Notice to Vacate, not the date of the trustee’s sale.

For tenants who are renting month-to-month, and for those tenants whose leases have already expired, the landlord must still give the tenants a 90 Day Notice to Vacate.  This is true even if the lease will naturally expire soon after the foreclosure.

The Protecting Tenants at Foreclosure Act also applies to Section 8 voucher housing. It provides that a foreclosure does not qualify as “other good cause” for terminating an existing Section 8 lease (except when the new owner intends to occupy the property as her primary residence).  It also provides that the new owner assumes both the lease and the housing assistance payments contract.  Most importantly, these changes affect all Section 8 tenants, even those living in units that were foreclosed before May 20.

What Are My Options?

In all of these situations, while tenants who wish to remain in their leases must still honor the original terms of their leases, including the obligation to pay rent, the new owners (often the lenders) must also honor the lease.
In addition, banks often offer payment if tenants will agree to move out earlier voluntarily. These “Cash for Keys” agreements can be helpful for tenants who intended to move out soon anyway. Tenants can often expect payments from a few hundred dollars to a few thousand dollars, depending on the condition and location of the property.

Finally, tenants should know that they have the right to continue their leases. This is permissive, but not obligatory. In most cases, while the new owner and the tenant are allowed to continue the lease by mutual agreement, nothing requires them to do so.  Therefore, before the new landlord can enforce the terms of the existing lease, the tenant must affirm the lease.  This affirmation can be done expressly – by signing an agreement, for example – or impliedly. Probably the most common way tenants imply their consent to continue the lease is by continuing to pay the rent. If a tenant does not want to continue the lease with the new owner, she should contact an experienced real estate attorney for legal advice. Otherwise, the tenant runs the risk of unintentionally ratifying the existing lease agreement.

What Happens to My Security Deposit?

Nothing in the new Federal law changes the disposition of security deposits, which in California are still regulated by statute. If you are a landlord or a tenant with a specific question about security deposits, contact an experienced real estate attorney for legal advice. Check the Bowman & Associates Blog regularly for updates on security deposits and other landlord/tenant issues.

Sacramento Family Law Attorney Robert Bowman helps clients across California. If you or someone you know has legal questions regarding divorce, child support, child custody, or spousal support cases and more, Robert Bowman is an aggressive advocate for your rights.