By Rob Harlow
On May 20, 2009, the Helping Families Save Their Homes in Bankruptcy Act of 2009 was signed into law. The purpose of the Act was to provide debtors more flexibility to modify the terms of a federally related mortgage loan or a loan on any dwelling or residential real property. Much has been made in the media about the effects of the Act; however, one area of the Act that has been overlooked involves the protections provided to tenants of property subject to the Act.
Section 702 of the Act provides protections to tenants. Under Section 702 of the Act, a party taking title to property by foreclosure on (1) a “federally related mortgage” or (2) a property that is a “dwelling” or a “residential property,” takes title to the property subject to the leasehold occupancy rights of a tenant on the property under a bona fide lease in place at the time notice of the foreclosure sale was delivered. Even if the mortgage or deed of trust being foreclosed predates or primes the lease and upon foreclosure would ordinarily under applicable law terminate the lease, the Act provides that the existing tenant can potentially remain in occupancy for the full lease term. If the existing tenant at the time of the foreclosure notice is in occupancy without a current lease, the Act provides that a tenant may be removed upon providing the tenant a 90-day written notice to vacate.
What does this really mean? The bottom line is that if the Act applies, a party taking title to property as a result of a foreclosure may be required to honor the occupancy rights of residential tenants in place at that time despite the priority of the lien being foreclosed.
If you have any questions regarding this Act or issues related to it or foreclosure in general, please contact any of the following:
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