A relatively new law could influence the way people decide to buy foreclosed properties, or recover possession of a foreclosed property, says Craig Tice, Chief Operating Officer of LB Property Management, based in Sherman Oaks, CA and operating in both California and Arizona. Here, he talks about what the Protecting Tenants at Foreclosure Act of 2009 is all about.
On May 20, 2009, the Protecting Tenants at Foreclosure Act of 2009 (PTFA) was signed by President Barack Obama. This is a law that everyone who deals with foreclosed properties should know about. It will definitely change a new property owner’s ability to recover possession of a foreclosed property. I recommend that everyone consider this new law, as well as how it will affect the purchaser, before foreclosing on a unit.
Who is protected by the law? It states that the “bona fide” is protected. But who is that? A bona fide tenant of the previous owner is someone who entered into a lease agreement before the Notice of Foreclosure was recorded. That means that the lease was negotiated at “arms-length,” and that the rent is not “substantially” lower than the fair market rent for the property. An exception may apply to the fair market value requirement if the rent is reduced because of a subsidy. The protections do not apply if the tenants are a child, spouse or parent of the former owner. If this is the case, then the tenants are not bona fide.
Complying with Terms of Lease
If you have purchased a foreclosed property or you have foreclosed on a property and have determined that the tenant is bona fide and is on a fixed term lease, then that tenant may remain in possession of the property until the lease expires. However, the tenant must comply with the terms of the lease.
Should the tenant fail to do this, the property owner may utilize the same remedies he would otherwise to enforce the lease terms. For example, if the tenant does not pay in a timely manner, a Three-Day Notice to Pay or Quit may be served. PTFA does not affect any federal, state or local provisions for subsidized tenants that have longer time periods or other additional protections. In other words, the tenant still receives the same rights and obligations provided by the subsidized housing rules or rent control.
The new owner can recover possession prior to the end of the lease in a few exceptional circumstances. If the new owner will use the property as a principal residence, for example, then a 90-Day Notice to Quit can be served, notwithstanding a fixed term lease with the prior owner.
Notice to Quit
It is also important to note that if the tenant is a bona fide tenant and the tenancy is month-to-month, a 90-Day Notice to Quit may be served to recover possession of the subject property. The tenant may not stay there indefinitely, but you will have to wait for the 90-Day Notice to expire.
Homeowners associations should consider the impact that PFTA will have on them when members are deciding whether to foreclose on a unit. They should be familiar with this before taking steps to recover possession of a foreclosed property.
If you need to know more, consult with your attorney as well as a real estate professional prior to purchasing a foreclosed unit, or before attempting to gain possession of one. Keep in mind as well that the law will terminate on December 31, 2012.
