1. Protecting Tenants at Foreclosure Act
Pisgah Legal Services
Molly Maynard

2. Take Aways
Tenants get a minimum of 90 days notice to vacate after foreclosure, and are often entitled to complete their lease
PTFA as currently written ends 12/31/2014, but other protections exist under NC laws
Property managers and successors in interest often ignore these protections until reminded

3. Protecting Tenants in Foreclosure Act of 2009
Legislative response to widespread issue
Over 40% of foreclosures at the time impacted tenants
Took effect May 20, 2009
Original sunset date December 31, 2012
Dodd-Frank Act later extended expiration to December 31, 2014

4. Generally
Law protects tenants with “bona fide tenancy” living in homes that are being foreclosed
Applies to any “federally related mortgage loan”
Requires that “immediate successor in interest” require with certain notice requirements

5. Completion of Lease
Tenants who entered into lease before notice of foreclosure must be permitted to stay in the home through the end of the lease UNLESS:
The property is sold to a purchaser who will occupy the property as a primary residence OR
There is no lease or lease is terminable at will under state law
Even in those circumstances, however, tenants are entitled to the 90 day notice
Section 702(a)(2)(B)

6. Special Protections for Section 8 Tenants
New owner takes subject to the Section 8 voucher lease AND the Section 8 HAP contract
New owner may not use foreclosure to evict residents (not good cause) UNLESS owner plans to occupy unit as a primary residence
In this case, 90 days notice still applies
Project Based Section 8 is not subject to section 703, but is subject to section 702

7. Tenant Responsibilities After Foreclosure
Tenant must pay rent
Paid to successor in interest
If not accepted, should escrow rent
Failure to pay may be grounds for eviction
Important to keep track of escrow and notify new owner
Successor in interest must maintain property

8. Issues in PTFA

9. Federally Related Mortgage Loans
Same definition as Section 3 of RESPA (12 USC 2602)
Definition includes any loan secured by a lien on one-to-four family residential property, including units in condos or coops.
As of November 20,2013 OCC Guidance on these issues applies to Federal Savings Associations (in addition to National Banks)
Sec Definitions
For purposes of this chapter-- (1) the term ``federally related mortgage loan'' includes any loan (other than temporary financing such as a construction loan) which-- (A) is secured by a first or subordinate lien on residential real property (including individual units of condominiums and cooperatives) designed principally for the occupancy of from one to four families, including any such secured loan, the proceeds of which are used to prepay or pay off an existing loan secured by the same property; and
(B)
(i) is made in whole or in part by any lender the deposits or accounts of which are insured by any agency of the Federal Government, or is made in whole or in part by any lender which is regulated by any agency of the Federal Government, or
(ii) is made in whole or in part, or insured, guaranteed, supplemented, or assisted in any way, by the Secretary or any other officer or agency of the Federal Government or under or in connection with a housing or urban development program administered by the Secretary or a housing or related program administered by any other such officer or agency; or
(iii) is intended to be sold by the originating lender to the Federal National Mortgage Association, the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation, or a financial institution from which it is to be purchased by the Federal Home Loan Mortgage Corporation; or
(iv) is made in whole or in part by any ``creditor'', as defined in section 1602(f) of title 15, who makes or invests in residential real estate loans aggregating more than $1,000,000 per year, except that for the purpose of this chapter, the term ``creditor'' does not include any agency or instrumentality of any State;

10. Immediate Successor in Interest
PTFA applies to banks who purchase at foreclosure as well as to private parties
Private parties intending to live in the home as a primary residence are treated slightly differently
Party does not become the successor in interest until the transfer is complete
In NC this means until the trustee’s deed is recorded

11. Notice Requirement
Date of “notice of foreclosure” is the date on which complete title to a property is transferred to a successor in interest
Successor must provide at least 90 days notice to vacate
90 day period cannot begin before completion of transfer to successor in interest
NOT the day foreclosure was initiated or the first time Tenant learned of the foreclosure
Section 1484 of the Act clarifies that notice of foreclosure means, “the date on which complete title to a property is transferred to a successor entity or person as a result of an order of a court or pursuant to provisions in a mortgage, deed of trust, or security deed.” The Dodd-Frank Act therefore confirms that the PTFA protects all bona fide tenants that entered, or will enter, into a lease agreement before the transfer of complete title to the new owner.

12. Notice Issues 90 day notice must be unambiguous
Bank of N.Y. Mellon v. De Meo, 254 P.3d 1138 (Ariz. App. 2011) (waiting 90 days before giving a shorter notice not sufficient)
Alta Cmty. Invs. III v. Ottoboni, No (Cal. Super. Ct. July 29, 2010) (notice which gave 30/60/90 day alternative time periods was found ambiguous)
E Trade Bank v. Salter, No (Cal. Super. Ct. Jan. 20, 2011) (30/60/90 day notice which required tenant to prove tenancy within 3 days found ambiguous)
Fed. Nat'l Mortg. Ass'n v. Vidal, No. 11H84SP004364, 2012 WL (Mass. Hous. Ct. Feb 17, 2012) (Fannie Mae required to serve 90 day notice even where eviction was based on non-payment of rent, a 14-day notice period)

13. Bona Fide Lease or Tenancy
Conditions:
Mortgagor, or a child, spouse, parent of the mortgagor is not the tenant; and
Lease or tenancy was the product of an arm’s length transaction; and
Lease or tenancy requires the receipt of rent that is not less than fair market rent or the rent is reduced or subsidized due to federal, state, or local subsidy.

14. Bona Fide Tenancy Issues
Successor in interest may not require tenant to prove bona fide tenancy within five days to avoid the 90 day notice obligation; burden is on owner to demonstrate that resident is NOT a tenant
Bank of Am. N.A. v. Owens, 903 N.Y.S.2d 667 (City Ct. 2010)
Unless otherwise proven, existing tenant presumed bona fide
Fed. Nat'l Mortgage Assoc. v. Dobson, No. 10-CVG (Ohio Mun. Ct. Mar. 1, 2010)

15. NC Law Protections Use after PTFA expires
Record lease with Register of Deeds if Tenant suspects that foreclosure may occur
Negotiate more time and/or “cash for keys” with new owner
NCGS provides for early termination of lease by tenant after receiving notice of sale.
Tenant must give 10-day written notice.

16. Other Protections in NC Law
Notice of Foreclosure: NCGS (4) Tenant given 20 day notice for properties with less than 15 units
Notice to Vacate Foreclosed Property: Upon application for Order of Possession, must show occupant was given 10 days notice, for properties with 15 or more units, tenants must be given 30 days notice

17. Issues Arising from PTFA Violations

18. Orders Without Sufficient Notice
Successors in interest, often through property management companies or substitute trustee firms, get Orders of Possession without appropriate notice

19. Requiring Tenant to Prove Status
Notices often require tenant to submit their lease or otherwise prove their status as a bona fide tenant in order to be entitled to the 90 day notice
Often set very short timelines to do so

20. Difficulty Reaching Appropriate Party
Different property managers to handle occupied and unoccupied parties
Tenants often receive notices from both
Unclear to tenants who they need to be communicating with

21. Remedies Can sometimes be resolved by contacting the moving party
If not, need to do a Motion to Set Aside Order before the clerk and a TRO
Case law in other states makes clear that tenants should not have to prove their status to be entitled to protections

22. Cash for Keys
Often available if tenants are willing to move out prior to the termination of their lease

23. NC Law on PTFA
Fannie Mae v. McLean, 2013 NC App. LEXIS 1006 (where lease has expired after foreclosure, tenant is not entitled to additional 90 day notice after end of lease)
Review denied
Buncombe County case

24. Questions? Contact the Pisgah Legal Services Consumer Protection Team: