What Happens to Renters After Foreclosure?
Prior to 2009, a foreclosure wiped out a lease in many states. This resulted in few protections for tenants renting homes that had been foreclosed. In most places, the lenders could and did evict these tenants with either a 3- or a 30-day notice in order to sell the home. On May 20, 2009, the federal Tenants at Foreclosure Act went into effect, affording a number of new protections for renters in foreclosed properties.
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Lease Continues
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The Tenants at Foreclosure Act requires that a lease survives foreclosure. Because many residential leases cover a one-year term, this results in tenants being assured they can remain in their homes up to a year after foreclosure, depending on the amount of time remaining in their leases. All other aspects of the lease -- rent levels, rules and utility payments -- are also locked into place for the duration of the lease. If, however, the lease term has expired, it is a month-to-month lease or there is no lease, lenders may either raise the rent or, more likely, evict the tenants.
Longer Eviction Notice Period
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After the lease term expires, the lease is month-to-month or there is no lease, the foreclosing lender can and generally does evict the tenants of a foreclosed property. The Tenants at Foreclosure Act requires the foreclosing party to give the tenants a 90-day notice of the eviction. This is substantially longer than the non-foreclosure notice required in most states.
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Exceptions
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The requirement to honor the lease does not apply when the foreclosing party sells the property to a purchaser who plans to occupy the unit. In cases in which the tenants are spouses, parents or children of the borrowers who lost the property in foreclosure, the lease does not have to be honored nor is a 90-day notice required prior to eviction. These tenants are not considered bona fide under the federal law.
Just Cause Eviction
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When one or more provisions of the Tenants at Foreclosure Act regulations do not apply because of an exception or because there is no lease, the lease has expired or the lease is month-to-month, existing state and local law apply with regard to eviction. Additionally, if state or local law is more restrictive than the federal law, it takes precedence; and in all cases, the most restrictive law applies. In most states, tenants can be evicted without reason with a 30-day notice. However, in a few states, such as New Jersey and New Hampshire, and in some cities with local rent control legislation, such as San Francisco, Seattle and New York, evictions may only be undertaken with just cause, such as failure to pay rent. Foreclosure is not considered a just cause. Therefore, in these locations tenants are protected from eviction after foreclosure just as they would be had the property not been foreclosed upon.
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References
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