The New Federal Law
Are you sure you can issue that eviction notice to a tenant? As an investor, be well versed in the Federal Protecting Tenants at Foreclosure Act before you knock on a door and issue a notice to vacate. As a tenant, be sure you know your rights. An Investor could find themselves in a world of trouble with Housing and Urban Development (HUD) or the Federal Deposit Insurance Corporation (FDIC).
The Federal Protecting Tenants at Foreclosure Act protects the tenant from unlawful eviction. The tenant must be a “bona fide” tenant. “Bona fide” means the tenant pays fair market rent, has no relation to the previous homeowner prior to foreclosure and most importantly, the lease must have been executed prior to the recording of the foreclosure notice.
If the foreclosure occurs and the home is occupied by a tenant, the new owner must honor the existing lease. A written 90-day notice must be presented to the tenant before the expiration of the lease. Until these steps are honored no legal action can be taken. This new Federal Law supersedes any State law.
An inexperienced investor purchases the home at the foreclosure proceedings. The investors intent is to renovate the home and then sell it as quickly as possible. It is not until after the foreclosure auction, the investor learns the home is occupied with a “bona fide” tenant. The tenant previously signed a two-year lease prior to the foreclosure notice. There is still 14 months remaining on the lease. As long as the tenant does not breach the lease, the investor has to wait 14 months to renovate the home and place it on the market.
The Landlord Tenant Act requires the landlord gives the tenant 30 day notice to vacate. In the above scenario, the Federal Protecting Tenants at Foreclosure Act mandates the investor must issue a 90 day notice to the tenant.
At the foreclosure proceedings the home was not bid on by an investor. When this happens the home reverts back to the bank or lender. Once the property has reverted back to the bank, they will send a representative to the home to inspect for occupancy status. The bank learns that the home is occupied with a “bona fide” tenant. The Federal law requires the bank follows the same procedures as the investor.
This new law does not apply to someone who purchases the home through foreclosure, if the new owners intent is to occupy the home. The new owner is not required to honor the tenants lease but must give a 90-day notice to vacate.
The investor or bank has no way of knowing if a home has a bona fide tenant prior to a foreclosure proceeding. It is important the investor or bank is aware of the ramifications and potential delays as set forth in the Federal Protecting Tenants at Foreclosure Act.
