Grant’s Commentaries

Tenants and Foreclosure

What happens to a tenant when a lender, condo association or HOA forecloses their mortgage or lien? Before Congress recently stepped in, the tenant would be subject to immediate eviction.

When Congress passed the Protecting Tenants at Foreclosure Act of 2009, it was trying to prevent the quick eviction of the nonowner tenant in connection with a foreclosure. The law is applicable to any foreclosure of a federally related mortgage loan or any residential property after the date of enactment of the Act.

The Act provides that the immediate successor in interest in the property will be subject to the rights of the tenant to remain in possession of the property, subject to certain limitations specified in the Act. The tenant under a bona fide lease will have the right to remain in possession pursuant to the lease to the end of the term of the lease, subject to the tenant’s rights being terminated with 90 days notice; or if no lease, subject to termination with 90 days notice.

A lease is considered bona fide only if the mortgagor or the child, spouse or parent of the mortgagor is not the tenant, the lease was an arm’s length transaction, and the lease requires rent that is not substantially less than fair market rent for the property. The Act applies to lenders and condominium/homeowner’s associations who foreclose their liens on the property.

There are many unanswered questions raised by the Act. It’s not clear when the 90-day notice must be given to the tenants. It’s not clear what happens if the tenant fails to pay rent or otherwise defaults under the lease. Stay tuned for further developments as the courts start to interpret this new law.

*Grant Kehres is Board Certified by the Florida Bar Board of Legal Specialization as a Real Estate Law Specialist. He holds a doctorate in jurisprudence from Vanderbilt University, an MBA (finance) from Babson College and a dual undergraduate degree in investments and economics from Babson College. Admitted to The Florida Bar in 1978, he has handled nearly 10,000 closings for more than 6,000 clients. For more information on our services and what distinguishes our office from other law firms and title companies, call (561) 392-5200.

Posted 11-01-2009