October 6, 2009
Previously published on September 25, 2009
On May 20, 2009, the Helping Families Save their Homes Act of 2009 was signed into law by President Barack Obama. This legislation includes Title VII – the Protecting Tenants at Foreclosure Act of 2009 (the “Act”). The Act profoundly affects foreclosure proceedings on any federally-related mortgage loans, dwelling, or residential real property, which likely includes multi-family properties.
In order to qualify as a bona fide tenant, three requirements must be satisfied: (1) the tenant must not be the mortgagor (usually, the borrower), or closely related to the mortgagor; (2) the tenant’s lease must be an arms-length transaction; and (3) the rent due under the lease must not be substantially less than fair market rent for the property.
If a bona fide tenant resides at the property, the party taking title to the property via foreclosure (the “Foreclosing Party”) must abide by the following regulations:
- The Foreclosing Party cannot evict a bona fide tenant before the expiration of the lease term; but
- The Foreclosing Party may evict a bona fide tenant upon 90-days’ notice, if the Foreclosing Party intends to utilize the property as a primary residence, or sells the property to a new owner to use as a primary residence. The Act does not specify what qualifies as using the property as a primary residence; and
- The Foreclosing Party can evict the tenant upon 90-days’ notice when there is no written lease, or when the lease is terminable at-will.
The Act expires on December 31, 2012, if Congress does not extend it prior to that date.
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