Tenants in Foreclosed Properties

Many clients and associations in general (both condos and HOAs) are in possession of properties that do not have “clear title.”  This puts the association in the position of wanting to rent out the property until the lender forecloses.  One question we hear often is what protections, if any, exist for a tenant who signs a bona fide lease with the association, only to have the lender foreclose on the property during the term of the lease.

The good news is that the Protecting Tenants at Foreclosure Act of 2009 prevents a bank from evicting a tenant from a foreclosed property under certain circumstances.  The Act applies to any property where the foreclosure was initiated after the Act was adopted.  The protections of the Act are currently set to expire on December 31, 2014 unless they are extended by Congress.

The protections of the Act are as follows:

  • If a bank forecloses on a property where a tenant lives under a bona fide unexpired lease, the bank cannot evict the tenant and must honor the terms of the lease.
  • If the bank foreclosure results in the property being sold to a purchaser who intends to occupy the property as their primary residence, the purchaser must give the tenant 90 days to vacate the property.
  • If the purchaser is neither the bank nor someone who intends to occupy the property as their primary residence, the purchaser (like the bank) must honor the terms of the lease.

These protections only apply where there is a “bona fide” lease.  Bona fide means the lease is made to a person unrelated to the mortgagor (borrower), must be an arm’s length transaction, and must be for a fair market rate rental rate.

If the lease is not a “bona fide” lease, the tenant may be evicted but only after 90 days notice.  In other words, in the worst of circumstances, a tenant can only be evicted upon 90 days’ notice; in the best of circumstances, the tenant can stay in the property for the remaining lease term without being evicted.

If you have any questions we can answer, please feel free to leave a comment or contact us directly.  We look forward to continuing this conversation with you in our future posts!

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8 Responses to Tenants in Foreclosed Properties
  1. Traci
    March 4, 2013 | 11:11 pm

    Hello – I’m currently renting a condo in Kent. When the housing market went down hill the original owner walked away therefore the HOA foreclosed on this unit then they purchased it in the sheriff auction for 5K. The deed still belong to the original owner as he has a 12/month waiting period. I signed a 12/month lease with a property mgt company on behalf of the HOA. 1/month after I moved in I rcvd noticed of defaults, foreclosure documents, and BOA is now foreclosing on this unit. As a tenant I understand what my rights are but what if I’m interested in purchasing this unit then I should contact the HOA, correct? If so, I did already reach out to one of the active board members he stated they would speak with the HOA attorney and get back to me but hasn’t yet. The only thing he said was I still haven’t heard back from our attorney which I don’t think is correct. I think they’re not interested in me making an offer. If that’s the case why wouldn’t they be interested? What would be some reasons? Should I contact the attorney directly? Any help would be appreciated! Thank you!

  2. Valerie Farris Oman
    March 4, 2013 | 11:20 pm

    Hello Traci,

    There are various factors which might play in to whether your offer should be submitted to the association or to the mortgage lender. It is relatively common that an association purchases a unit at a Sheriff’s Sale but will never actually own it “free and clear”. In other words, they purchase the unit but there may still be a mortgage on the property, which means the association can’t sell the property and the lender will eventually foreclose.

    That sure sounds like the case in your situation, where you received the lender’s notice of default after having moved in and where BOA is now foreclosing on the unit.

    Contacting BOA might be your best bet, but don’t be surprised if you can’t find a “real person” who can speak to you about that particular property. In other words, although that might be your “best bet,” it’s probably not a very good bet that you’ll be successful at communicating your offer to someone with the authority to make a decision about that offer.

    The only other thing you could do is attend BOA’s Trustee’s Sale and bid on the unit there. If you were interested in doing that, you’d want to be sure to get a title report and secure the services of someone who could advise you on whether that would be a good move financially, legally, etc.

    As always, this comment is meant to provide general information and not legal advice.

    Good luck!

  3. Traci
    March 4, 2013 | 11:37 pm

    Hi Valerie – Thank you for your response! I’ve already spoken with BOA which they along with the Trustee’s off stated if I wanted to make an offer before it goes to auction I would need to do so with HOA as they are the owner. I’m confused…??

    🙂

  4. Valerie Farris Oman
    March 5, 2013 | 4:51 pm

    Hi Traci,

    Beyond the general information I gave above, I can’t answer your question here as it is too specific and requires (a) an understanding of the particulars of your situation and (b) legal advice, which I cannot give on a blog. You may wish to consult with an attorney.

    Best wishes!

  5. Amy
    April 3, 2013 | 10:50 pm

    I am curious why the previous tenant left? If it is a judicial foreclosure, they have a year redemption period and could have stayed.

  6. Valerie Farris Oman
    April 4, 2013 | 4:07 am

    Hello Amy,

    I assume your question is why the OWNER, who has one year after a Sheriff’s Sale to redeem their property, would leave. The answer can be different based upon the circumstances. Often an owner will leave long before the Sheriff’s Sale takes place if they’ve made a decision to walk away from their property. If they don’t leave voluntarily, the purchaser at a Sheriff’s Sale is entitled to immediate possession of the property (RCW 6.23.110), so the purchaser can “evict” the owner if the owner refuses to pay rent or leave voluntarily.

    I think the rationale is that the owner has fallen so far into debt that they’ve lost their home to foreclosure, and should not be allowed to remain there for another full year “rent free.” If they want to stay in the property, they should redeem and if they can’t, allowing them to stay another year simply delays the inevitable AND allows their debt to grow unchecked.

    Hope that answers your question!

  7. Amy
    April 4, 2013 | 5:22 pm

    I am in a similar situation so that is why i am suprised the person left. Our HOA foreclosed on us recently. We have a year redemption period and we arent leaving until we have to. We are trying to pay HOA dues, post bankruptcy until we have to leave. I do feel we should be, since we are using water, garbage, and basic cable.

    We own a underwater condo, and decided the surrender it in bankruptcy which we did. We also included the past due dues.

    Unfrotunately hard times for us. Husband has been unemployed and ill. My hours were recently just reduced at work. We feel horrible for doing this.

  8. Valerie Farris Oman
    April 8, 2013 | 6:38 pm

    Amy, that is a tough situation to be in – I hope things turn around for your family.

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Tenants in Foreclosed Properties

Many clients and associations in general (both condos and HOAs) are in possession of properties that do not have “clear title.”  This puts the association in the position of wanting to rent out the property until the lender forecloses.  One question we hear often is what protections, if any, exist for a tenant who signs a bona fide lease with the association, only to have the lender foreclose on the property during the term of the lease.

The good news is that the Protecting Tenants at Foreclosure Act of 2009 prevents a bank from evicting a tenant from a foreclosed property under certain circumstances.  The Act applies to any property where the foreclosure was initiated after the Act was adopted.  The protections of the Act are currently set to expire on December 31, 2014 unless they are extended by Congress.

The protections of the Act are as follows:

  • If a bank forecloses on a property where a tenant lives under a bona fide unexpired lease, the bank cannot evict the tenant and must honor the terms of the lease.
  • If the bank foreclosure results in the property being sold to a purchaser who intends to occupy the property as their primary residence, the purchaser must give the tenant 90 days to vacate the property.
  • If the purchaser is neither the bank nor someone who intends to occupy the property as their primary residence, the purchaser (like the bank) must honor the terms of the lease.

These protections only apply where there is a “bona fide” lease.  Bona fide means the lease is made to a person unrelated to the mortgagor (borrower), must be an arm’s length transaction, and must be for a fair market rate rental rate.

If the lease is not a “bona fide” lease, the tenant may be evicted but only after 90 days notice.  In other words, in the worst of circumstances, a tenant can only be evicted upon 90 days’ notice; in the best of circumstances, the tenant can stay in the property for the remaining lease term without being evicted.

If you have any questions we can answer, please feel free to leave a comment or contact us directly.  We look forward to continuing this conversation with you in our future posts!

Share and Enjoy:
  • Print
  • Digg
  • StumbleUpon
  • del.icio.us
  • Facebook
  • Yahoo! Buzz
  • Twitter
  • Google Bookmarks
8 Responses to Tenants in Foreclosed Properties
  1. Traci
    March 4, 2013 | 11:11 pm

    Hello – I’m currently renting a condo in Kent. When the housing market went down hill the original owner walked away therefore the HOA foreclosed on this unit then they purchased it in the sheriff auction for 5K. The deed still belong to the original owner as he has a 12/month waiting period. I signed a 12/month lease with a property mgt company on behalf of the HOA. 1/month after I moved in I rcvd noticed of defaults, foreclosure documents, and BOA is now foreclosing on this unit. As a tenant I understand what my rights are but what if I’m interested in purchasing this unit then I should contact the HOA, correct? If so, I did already reach out to one of the active board members he stated they would speak with the HOA attorney and get back to me but hasn’t yet. The only thing he said was I still haven’t heard back from our attorney which I don’t think is correct. I think they’re not interested in me making an offer. If that’s the case why wouldn’t they be interested? What would be some reasons? Should I contact the attorney directly? Any help would be appreciated! Thank you!

  2. Valerie Farris Oman
    March 4, 2013 | 11:20 pm

    Hello Traci,

    There are various factors which might play in to whether your offer should be submitted to the association or to the mortgage lender. It is relatively common that an association purchases a unit at a Sheriff’s Sale but will never actually own it “free and clear”. In other words, they purchase the unit but there may still be a mortgage on the property, which means the association can’t sell the property and the lender will eventually foreclose.

    That sure sounds like the case in your situation, where you received the lender’s notice of default after having moved in and where BOA is now foreclosing on the unit.

    Contacting BOA might be your best bet, but don’t be surprised if you can’t find a “real person” who can speak to you about that particular property. In other words, although that might be your “best bet,” it’s probably not a very good bet that you’ll be successful at communicating your offer to someone with the authority to make a decision about that offer.

    The only other thing you could do is attend BOA’s Trustee’s Sale and bid on the unit there. If you were interested in doing that, you’d want to be sure to get a title report and secure the services of someone who could advise you on whether that would be a good move financially, legally, etc.

    As always, this comment is meant to provide general information and not legal advice.

    Good luck!

  3. Traci
    March 4, 2013 | 11:37 pm

    Hi Valerie – Thank you for your response! I’ve already spoken with BOA which they along with the Trustee’s off stated if I wanted to make an offer before it goes to auction I would need to do so with HOA as they are the owner. I’m confused…??

    🙂

  4. Valerie Farris Oman
    March 5, 2013 | 4:51 pm

    Hi Traci,

    Beyond the general information I gave above, I can’t answer your question here as it is too specific and requires (a) an understanding of the particulars of your situation and (b) legal advice, which I cannot give on a blog. You may wish to consult with an attorney.

    Best wishes!

  5. Amy
    April 3, 2013 | 10:50 pm

    I am curious why the previous tenant left? If it is a judicial foreclosure, they have a year redemption period and could have stayed.

  6. Valerie Farris Oman
    April 4, 2013 | 4:07 am

    Hello Amy,

    I assume your question is why the OWNER, who has one year after a Sheriff’s Sale to redeem their property, would leave. The answer can be different based upon the circumstances. Often an owner will leave long before the Sheriff’s Sale takes place if they’ve made a decision to walk away from their property. If they don’t leave voluntarily, the purchaser at a Sheriff’s Sale is entitled to immediate possession of the property (RCW 6.23.110), so the purchaser can “evict” the owner if the owner refuses to pay rent or leave voluntarily.

    I think the rationale is that the owner has fallen so far into debt that they’ve lost their home to foreclosure, and should not be allowed to remain there for another full year “rent free.” If they want to stay in the property, they should redeem and if they can’t, allowing them to stay another year simply delays the inevitable AND allows their debt to grow unchecked.

    Hope that answers your question!

  7. Amy
    April 4, 2013 | 5:22 pm

    I am in a similar situation so that is why i am suprised the person left. Our HOA foreclosed on us recently. We have a year redemption period and we arent leaving until we have to. We are trying to pay HOA dues, post bankruptcy until we have to leave. I do feel we should be, since we are using water, garbage, and basic cable.

    We own a underwater condo, and decided the surrender it in bankruptcy which we did. We also included the past due dues.

    Unfrotunately hard times for us. Husband has been unemployed and ill. My hours were recently just reduced at work. We feel horrible for doing this.

  8. Valerie Farris Oman
    April 8, 2013 | 6:38 pm

    Amy, that is a tough situation to be in – I hope things turn around for your family.

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