Home -> Law Blog Directory -> Bankruptcy Blogs -> Credit Slips

OR PHONE (866) 635-1838 for Bankruptcy Help, (866) 635-6190 for Divorce,
(866) 635-2689 for Personal Injury or (866) 635-9402 for Criminal Defense

Find a Local Lawyer

Bankruptcy (866) 635-1838
Divorce (866) 635-6190
Personal Injury (866) 635-2689
Criminal Defense (866) 635-9402

Bankruptcy

: Credit Slips

Tenant Protections in Foreclosure

By Katie Porter

ADVERTISEMENTS

A foreclosure has a ripple effect, as a number of commentators have observed. Foreclosed properties often sit vacant, leading to nuisance concerns, lower property values for neighboring houses, and higher crime rates. But some properties are not vacant on the day of foreclosure, and these occupied properties generate their own externalities.

After foreclosure, the new owner (usually the lender is the purchaser at the foreclosure sale) will typically send someone to see if the property is vacant. If not, the lender files an eviction or lawful detainer action. In many instances, especially in those formerly-booming real estate markets like Florida and Nevada, the occupants are tenants, not the homeowners. Depending on state law, renters often have no right to notice of the foreclosure and no right to remain in the property. The Chicago sheriff, Thomas Dart, stopped doing evictions after foreclosure last fall because of concerns about unjust harm to tenants.

Title VII of the Helping Families Save Their Homes Act provides uniform federal protection to tenants after foreclosure--at least until the law expires on Dec. 30, 2012 (apparently the date by which someone thought the foreclosure "crisis" will have abated). The law requires the new owner of a foreclosed property to allow tenants to stay in the foreclosed property for the remainder of the lease. If there is no lease, or if the lease is terminable at will under state law, tenants must be given at least 90 days' notice before they may be evicted. This is a floor that does not preempt more generous state law.

I'm interested in how financial institutions and tenants are going to deal with these requirements. Lenders have attorneys who routinely handle evictions after foreclosure. Being a landlord is a different task. Are tenants supposed to call the former owners' mortgage servicer when their pipes burst? If not, how is the tenant supposed to learn exactly who is the new owner of the property? Are note holders actively hiring property management companies to comply with this rule? Perhaps more interestingly, the bill doesn't seem to permit an eviction during the 90 days even if the tenants declare they aren't going to pay a dime of rent!

The Office of the Comptroller of the Currency has hardly offered answers to national banks. After waiting three months after the law's effective date, it put out a one-page release advising banks to "adopt policies and procedures to ensure compliance." Gee, that's helpful. I'm betting the readers of Credit Slips will have some more concrete thoughts about this.

Full post as published by Credit Slips on September 14, 2009 (boomark / email).