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Protecting Tenants at Foreclosure Again

By Jon Tavares, JD, LLM, CRCM, NCCO 27 Jun 2018

While the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 relieved financial institutions of many burdensome requirements, it revived a long forgotten about requirement in the Protecting Tenants at Foreclosure Act of 2009 ("PTFA").

 

In reality, it wasn't really forgotten about. The PTFA originally included a sunset provision which caused it to expire on December 31, 2014. Since that time, we have been advising financial institutions to follow the requirements as a best practice. There have been several attempts to revive the PTFA. With each failed attempt, I became more and more convinced that it was dead. It just so happens that the PTFA was only MOSTLY dead. In the immortal words of Miracle Max from the Princess Bride, "There's a big difference between mostly dead and all dead. Mostly dead is slightly alive." Effective June 23, 2018, the PTFA is once again effective.

 

Now, let me take a second to correct one misstatement we made a few weeks back. In her article discussing the Regulatory Relief Bill, Cindy Prince mentioned that the PTFA was revived but stated that we had to wait for implementing regulations. The PTFA is self-effectuating and is effective upon enactment of the Regulatory Relief bill. Nothing in the PTFA gives any federal agency authority to issue regulations.

 

So, now that the PTFA is back let's take a look at what it requires. We were fortunate that Congress didn't rewrite the law or introduce any new requirements. All they did was repeal the sunset provision leaving the rest of the PTFA intact. Under the PTFA, the immediate successor in interest at foreclosure (i.e. the new owner) must provide bona fide tenants at least 90 days' notice prior to eviction. The PTFA also allows bona fide tenants with leases to occupy property until the end of their lease term. If the property is sold to a purchaser who will occupy the property, the purchaser may terminate the lease upon 90 days' notice. A bona fide lease or tenancy is one where the mortgagor or the child, spouse, or parent of the mortgagor under the contract is not the tenant; the lease or tenancy was the result of an arms-length transaction; and the lease or tenancy requires the receipt of rent that is not substantially less than fair market rent for the property or the unit's rent is reduced or subsidized due to a Federal, State, or local subsidy. If the tenant is not a bona fide tenant, the provisions of the PTFA do not apply.

 

If you have been complying with the PTFA all along, this should not pose any problem. If you, like me, thought that the PTFA was dead, you will want to dust off those dusty old policies and bring them back to life. Your old policies should be fine as nothing in the PTFA, other than the sunset provision, changed.

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