The Protecting Tenants at Foreclosure Act was signed into law on May 20, 2009 as part of a federal effort to protect tenants suffering from the economic crisis. The Act continues leases after foreclosure and requires that the tenants be given at least 90 notice days to move, even if their lease is month to month. In order to qualify for these protections the lease involved must be “arms length” which means that the rent is reasonable and the parties are not related. If the new owner of the property wants it as a primary residence then the old lease can be terminated with 90 days notice. The law also provides for the continuation of Section 8 (Housing Choice) leases and contractions in spite of foreclosure.
This law provides an important protection for tenants but it also leaves many issues unaddressed. Properties in foreclosure typically deteriorate and services are often abandoned by their landlords while they are in a financial crisis. Even when a property enters foreclosure, banks are careful to avoid any legal responsibility for the condition and maintenance of the property while waiting for title to be transferred to a new owner at sheriff’s sale.
Municipal code enforcement is often too little too late since there are frequently no deep pockets to compel to keep the property habitable during the crisis. As a result, tenants living in rental properties in foreclosure are likely to face substandard conditions, and even fraud, as landlords continue to rent properties without making repairs. There have even been cases of suspicious vandalism causing building to be evacuated because they are unsafe while making them easier to sell and to rent.
Without prompt and effective code enforcement, lease protections during foreclosure is a glass half full. Old and new owners should be held liable for their negligent maintenance of properties and mortgage companies should not be let off the hook for making irresponsible loans that are essentially non-recourse to one asset shell borrowers.