03.25.2015 | Articles / Publications
Don’t Get Left in the Dark: Pre-eviction Noticing Requirements Following Sunset on the Protecting Tenants at Foreclosure Act
For the past five years, foreclosing lenders have been bound by a federal law that made it much more difficult to evict non-borrower tenants and occupants of the subject property following a foreclosure sale where the lender took title. The Protecting Tenants at Foreclosure Act (the “Act”) attempted to address the plight of tenants caught unaware by landlords with pending foreclosure actions. In so doing, it instituted a national scheme that eschewed all state dispossessory laws when it came to non-borrower occupied foreclosure properties, allowing tenants to remain in possession of a property until the later of ninety (90) days or the expiration of their lease term, provided they could show they had a bona fide lease, were paying a fair market rent, and were not related to the former borrower. In short, if a residential tenant could prove he had a real lease, the foreclosing lender was stuck with its terms.
The law, first enacted in 2009 as Title VII of Pub. L. No. 111-22 §701-703, 123 Stat. 1632 (2009) was originally set to expire December 31, 2012. The Act was extended until December 31, 2014, however, by Section 1484(2) of the Dodd-Frank Wall Street Consumer Protection Act of 2010 (Pub. L. No. 111-203). In the 113th Congress, Representative Keith Ellison (D-MN) and Senator Richard Blumenthal (D-CT) introduced bills that would remove the 2014 sunset date and make the Act permanent (H.R. 3543 and S. 1761). But neither the House nor Senate acted on the measure, and the Act has now expired by its own terms.
So what happens next? Housing advocacy groups may try to get the Act reinstated in the next Congress, but the outcome of their efforts is uncertain. Congress will likely be unreceptive to arguments on why the Act, initially passed as part of an overall foreclosure mitigation program in the wake of the 2008 financial crisis, is needed in today’s rebounding economy. That means that for the moment – and most likely for the future – each state’s own dispossessory laws will control the noticing process for evicting a non-borrower tenant after foreclosure. It is important, therefore, for foreclosing lenders to formulate an action plan with respect to the residential properties they may take into their REO portfolios.
As a first measure, a foreclosing lender needs to be aware of pre-eviction noticing requirements under applicable state law in the event it is the successful bidder at foreclosure and takes title to the subject property. A general overview of such requirements in the various states in Burr & Forman’s footprint is provided below.
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