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PTFA is Back: Lender Duties Toward Tenants Living in Foreclosed Properties

Congress has restored the federal Protecting Tenants at Foreclosure Act of 2009, which had expired under its own terms on December 31, 2014. Effective June 23, 2018, the PTFA creates a process to protect certain tenants residing in foreclosed properties from quick evictions.

Mortgage lenders and default servicers must have a thorough understanding of the PTFA's provisions and ensure as part of their eviction efforts that they create internal procedures for compliance.

Compliance will likely lengthen the time an eviction will take in these cases because covered tenants will be entitled to a 90-day eviction notice under federal law, even if state law would have allowed shorter notice. Lenders and others in the default industry may need to staff up, implement PTFA training programs, and establish written procedures and policies.

Major PTFA Provisions

The impetus for the PTFA was to protect bona fide tenants residing in foreclosed property from eviction by new owners before the renters have time to find and secure new residences. Basically, the successor in interest in foreclosure must allow the tenants to stay until the end of their lease, unless the property is purchased by a new owner that will occupy the property, in which case the new owners must give a proper 90-day notice to terminate the lease.

The PTFA's provisions only apply to an existing bona fide lease, meaning basically one entered into in an arms-length lease transaction at market rental rates before foreclosure. It would not apply, for example, to a rental arrangement between family members at a lower-than-market rate, to a lease that began after foreclosure or to owner-occupiers.

Note that Section 8 tenants have additional PTFA protections. Also, PTFA's provisions apply to both single-family or multi-family foreclosures and whether the foreclosure is judicial or nonjudicial.

The Importance of Legal Counsel

Mortgage lenders and servicers instituting eviction actions on foreclosed properties should have knowledgeable attorneys who can provide detailed, up-to-date guidance on the PTFA's requirements as well as on those of any applicable state or local laws that may impose additional responsibilities toward tenants living in these properties.

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