Property Management Blog

Update Regarding Tenants Rights During Foreclosure

Many questions have been raised regarding tenants rights at the foreclosure of a property. Below is a section of the bill signed in 2009 regarding preexisting tenancies and the effects of foreclosure:

S.896

Helping Families Save Their Homes Act of 2009 (Engrossed as Agreed to or Passed by
Senate)

TITLE VII--PROTECTING TENANTS AT FORECLOSURE ACT
SEC. 701. SHORT TITLE.

This title may be cited as the `Protecting Tenants at Foreclosure Act of 2009'.
SEC. 702. EFFECT OF FORECLOSURE ON PREEXISTING TENANCY.
(a) In General- In the case of any foreclosure on a federally-related mortgage loan or on any dwelling or residential real property after the date of enactment of this title, any immediate successor in interest in such property pursuant to the foreclosure shall assume such interest subject to--
(1) the provision, by such successor in interest of a notice to vacate to any bonafide tenant at least 90 days before the effective date of such notice; and (2) the rights of any bona fide tenant, as of the date of such notice of foreclosure--
(A) under any bona fide lease entered into before the notice of foreclosure to occupy the premises until the end of the remaining term of the lease, except that a successor in interest may terminate a lease effective on the date of sale of the unit to a purchaser who will occupy the unit as a primary residence, subject to the receipt by the tenant of the 90 day notice under paragraph (1); or
(B) without a lease or with a lease terminable at will under State law, subject to the receipt by the tenant of the 90 day notice under subsection
(1), except that nothing under this section 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.
(b) Bona Fide Lease or Tenancy- For purposes of this section, a lease or tenancy shall be
considered bona fide only if--
(1) the mortgagor under the contract is not the tenant;
(2) the lease or tenancy was the result of an arms-length transaction; or
(3) the lease or tenancy requires the receipt of rent that is not substantially less
than fair market rent for the property.
(c) Definition- For purposes of this section, the term `federally-related mortgage loan' has
the same meaning as in section 3 of the Real Estate Settlement Procedures Act of 1974
(12 U.S.C. 2602).
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