Financial Services

New Post-Foreclosure Tenant Protections

October 2009

By Susan B. Hollinger*

A new law, the Helping Families Save Their Homes Act of 2009, was recently signed into law on May 20, 2009 and includes among its provisions new protections to residential tenants until the year 2013, who face eviction as a result of foreclosure.

The Administration wanted to establish protections for renters in good standing so that they would not be forced out of their homes without adequate notice. Under Title VII of the Act, in the case of any foreclosure on a federally-related mortgage loan or on any dwelling or residential real property, any immediate successor in interest in the foreclosed property (and this would include a bank or its subsidiary if it takes title to the residence upon foreclosure), assumes the property subject to the obligation to provide a bona fide renter at least a 90-day notice before evicting the renter, as well as the obligation that existing leases must continue to be honored except under certain circumstances.

The existing leases must continue to be honored except if the purchaser at foreclosure intends to occupy the foreclosed property as its primary residence or there is no lease or the lease is terminable at will under State law. Even if the lease does not need to be honored because of these exceptions, the requirement for the 90-day notice still applies.

The Act provides that the term "federally-related mortgage loan" has the same meaning as in section 3 of the Real Estate Settlement Procedures Act, which means it includes, among others in its definition, federally insured banks and certain other creditors. The Act also provides that a lease will only be considered bona fide if the renter is not the mortgagor or a family member of the mortgagor, the lease is the result of an arms-length transaction and the lease provides that the rent is not substantially less than fair market rent (unless otherwise due to a government subsidy).

Banks should take note — federal bank regulators are instructing banks under their supervisory jurisdiction to adopt policies and procedures in order to ensure compliance with these requirements.

* Susan B. Hollinger is admitted in New Hampshire, Vermont and Massachusetts.

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