South Carolina Lawyer
SC Lawyer, May 2010, #2.
The Protecting Tenants at Foreclosure Act: Keeping Tenants in the Loop and in Their Homes
South Carolina Lawyer May 2010 The Protecting Tenants at Foreclosure Act: Keeping Tenants in the Loop and in Their Homes By Clanitra L. Stewart Introduction
Imagine that you have just received a phone call from a frantic tenant who has discovered that the home she has been renting from her landlord for years is being foreclosed on. Although the tenant has a written lease with her landlord, she was not notified about the foreclosure until late in the process. Now that the tenant knows the foreclosure is happening, she wants to know about her legal rights in the matter. Will she have to move? Does the law protect her tenancy at all? If you received a call like this, would you know how to advise this client?
In the past, residential tenants in South Carolina properties that were foreclosed on were left with little, if any, notice of the foreclosure action and even less time to find a new place to live. Moreover, those tenants had little recourse to enforce their existing leases. In some cases, the foreclosing entities were not even aware that a tenancy existed for the property that predated the foreclosure action. Fortunately, recent changes to federal law have placed the tenant in a more equitable position in such situations.
On May 20, 2009, President Barack Obama signed into law the "Protecting Tenants at Foreclosure Act" (PTFA). The PTFA is Title VII of the much broader "Helping Families Save Their Homes Act of 2009." The Helping Families Save Their Homes Act was designed to help stabilize the housing crisis and to provide protections for homeowners and renters at risk of losing their homes or apartments. To accomplish its purpose, Congress placed within the PTFA's four sections strong protections for tenants with existing residential leases for certain types of property that were foreclosed upon after May 20, 2009. These protections allow certain tenancies pre-dating the enactment of the law to survive foreclosure actions for at least 90 days, or in some cases, the remainder of the lease term, whichever is longer. The provisions of the PTFA apply only to residential leases. The PTFA does not change any laws related to commercial leases. Protecting Tenants at Foreclosure Act, Pub. L. No. 111-22, §§ 701-704, 123 Stat. 1660 (2009).
Section 701 of the PTFA provides the title of the Act. Section 702 describes the effects of a foreclosure action on a preexisting tenancy. Section 703 describes the effects of a foreclosure action on existing tenancies for Section 8 housing. Finally, Section 704 provides the date that the provisions of the Act will terminate: December 31, 2012. Id. Although sparse in language, the PTFA provides clear requirements for "successors in interest pursuant to the foreclosure" of residential properties occupied by tenants. Generally, these successors in interest are individuals, banks or other entities that have purchased the foreclosed properties. Although not explicitly stated in the PTFA, implied in the term "successor in interest" is the fact the legal title has transferred to the successor pursuant to the foreclosure. Accordingly, even if a foreclosure case on a residential property with a tenant living on it is filed prior to May 20, 2009, the provisions of the PTFA could still affect the foreclosure if legal title did not pass to a new owner until after that date.
Section 702: Foreclosure actions and preexisting tenancies
Section 702 of the PTFA states that for foreclosures on residential properties that occur after May 20, 2009, any immediate successor in interest to that residential property pursuant to the foreclosure takes the foreclosed residential property subject to certain rights of "bona fide tenants" with "bona fide leases" that were in existence at the time of the foreclosure. § 702, 123 Stat. at 1660-61. Section 702(b) provides that a tenant or a lease is "bona fide" when: 1) the tenant is not the mortgagor or a child, spouse or...