The Protecting Tenants at Foreclosure Act (PTFA), enacted on May 20th, 2009, provides renters new federal protections when landlords lose rental units to foreclosure (1). Prior to PTFA, renters in most states had their leases extinguished at foreclosure, and thus had limited rights relative to evictions initiated by succeeding property owners. In fact, some states permitted evictions with as little as three days’ notice. Congress responded to this problem by applying the Act’s provisions nationwide, covering all dwellings and “federally related mortgages” – essentially, “99.8% of all mortgages” in the country, according to David Rammler of the National Law Housing Project. PTFA will override less protective state laws, while not preempting laws that afford tenants stronger protections.

Protections

Under PTFA, tenants living in foreclosed rental units must be given a minimum 90-day pre-eviction notice by the “successor of interest” – the entity that takes clear legal title after foreclosure. This covers renters with “month-to-month” leases, renters with leases terminable at-will, and even renters without formal leases but verifiable rent payment history. However, if the tenant has more than 90 days left on the lease, the tenant must be allowed to stay until the lease ends, except if the new owner will occupy the property as a primary residence.

In rental units occupied by Section 8 voucher holders, the successor in interest takes the property subject to the Section 8 lease and the subsidy contract as long as the new owner will not occupy the unit as a primary residence.

Restrictions and Limitations

• The law applies to leases enacted prior to the transfer of title caused by foreclosure.
• The law limits protections to “bona fide” leases. A lease is bona fide when:
  • the tenant is not the mortgagor, the mortgagor’s child, spouse, or parent;
  • the lease is the result of an arms-length transaction, and
  • the rent due under the lease is not substantially less than market rent, unless then rent is reduced by a subsidy.
• PTFA does not specify the kind of notice that must be issued by the successor of notice; here, state law applies.
• The law does not expressly make the new owner responsible for a tenant’s security deposit.
• If a bank takes ownership of the property and honors a bona fide lease, it is not obligated to renew the lease.
• The law will expire on December 31, 2012.

Getting the Word Out and Tracking Compliance

Advocates can promote PTSA by circulating materials prepared by the National Housing Law Project and made available at the National Low Income Housing Coalition’s website (2). They can also report violations to agencies including Office of the Comptroller of Currency – which will include PTSA compliance in their bank examination process – and the Federal Trade Commission. Alternately, advocates can email the National Law Center on Homelessness and Poverty with lender-specific complaints at ptfamatters@gmail.com.

[1] See Pub. Law No. 111-22, § 702-704 (2009): http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_public_laws&docid=f:publ022.111.pdf
[2] See NLIHC’s “Renters in Foreclosure” toolkit at http://www.nlihc.org/template/page.cfm?id=227