Monday, November 2, 2009

Tenants get new federal rights while associations get nothing.

How many of you are aware of the existence of the Protecting Tenants at Foreclosure Act of 2009? Apparently, this law was slipped in while people were busy watching the health care bills, the new Supreme Court Justice nominee and which of Obama's staff members didn't pay their taxes!

The law is not crystal clear as to what rights it affords tenants in homes or units that have been foreclosed on but it clearly confers some important new tenant protections. The law automatically expires on December 31, 2012, but until then it could significantly impact your community association. The Act provides protection to bona fide tenants (defined as any person not related to the person being foreclosed on who enters into a lease before the notice of foreclosure, in an arms-length transaction for a rental amount that approximates fair market rental value).

The Act specifically provides that a bona fide tenant cannot be kicked out of the dwelling as soon as someone else (the bank or presumably the association) takes title to the property. Instead, whoever takes title to the property at the foreclosure sale does so subject to the tenant's new federal right to occupy the unit for a period of time and must provide the tenant with a 90-day notice to vacate before attempting to remove that tenant.

Moreover, unless the property is sold to someone who intends to occupy the property as their primary residence, whoever takes title at the foreclosure sale must honor any existing bona fide lease even if it goes beyond the 90 days. In other words, someone who has a year left on their lease cannot be kicked out until their lease is over unless the property is sold to someone who intends to occupy it as their primary residence and the 90-day notice has been given.

For some associations this might be a good thing as the units/homes they foreclose upon will come with ready-made tenants. However, I can see room for problems including tenants who claim they have prepaid their rent to the prior owner and issues with troublesome tenants whose removal will now be delayed as a result of this new law.

The real question remains why struggling association members remain the last group standing who have not received any sort of federal or local help.

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