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[ Follow Ups ] [ Post Followup ] [ The Forum Board ] [ FAQ ] new tenant law Posted by Bruce Norris on May 29, 2009 at 3:44 AM Ward: I'm attaching the new tenant law and a legal opinion about the laws affect. I'd like to know if you agree with the conclusions. TITLE VII--PROTECTING TENANTS AT FORECLOSURE ACT SEC. 701. SHORT TITLE. This title may be cited as the `Protecting Tenants at Foreclosure Act of 2009'. SEC. 702. EFFECT OF FORECLOSURE ON PREEXISTING TENANCY. (a) In General- In the case of any foreclosure on a federally-related mortgage loan or on any dwelling or residential real property after the date of enactment of this title, any immediate successor in interest in such property pursuant to the foreclosure shall assume such interest subject to-- (1) the provision, by such successor in interest of a notice to vacate to any bona fide tenant at least 90 days before the effective date of such notice; and (2) the rights of any bona fide tenant, as of the date of such notice of foreclosure-- (A) under any bona fide lease entered into before the notice of foreclosure to occupy the premises until the end of the remaining term of the lease, except that a successor in interest may terminate a lease effective on the date of sale of the unit to a purchaser who will occupy the unit as a primary residence, subject to the receipt by the tenant of the 90 day notice under paragraph (1); or (B) without a lease or with a lease terminable at will under State law, subject to the receipt by the tenant of the 90 day notice under subsection (1), except that nothing under this section shall affect the requirements for termination of any Federal- or State-subsidized tenancy or of any State or local law that provides longer time periods or other additional protections for tenants. (b) Bona Fide Lease or Tenancy- For purposes of this section, a lease or tenancy shall be considered bona fide only if-- (1) the mortgagor or the child, spouse, or parent of the mortgagor under the contract is not the tenant; (2) the lease or tenancy was the result of an arms-length transaction; and (3) the lease or tenancy requires the receipt of rent that is not substantially less than fair market rent for the property or the unit's rent is reduced or subsidized due to a Federal, State, or local subsidy. (c) Definition- For purposes of this section, the term `federally-related mortgage loan' has the same meaning as in section 3 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2602). SEC. 703. EFFECT OF FORECLOSURE ON SECTION 8 TENANCIES. Section 8(o)(7) of the United States Housing Act of 1937 (42 U.S.C. 1437f(o)(7)) is amended-- (1) by inserting before the semicolon in subparagraph (C) the following: `and in the case of an owner who is an immediate successor in interest pursuant to foreclosure during the term of the lease vacating the property prior to sale shall not constitute other good cause, except that the owner may terminate the tenancy effective on the date of transfer of the unit to the owner if the owner-- `(i) will occupy the unit as a primary residence; and `(ii) has provided the tenant a notice to vacate at least 90 days before the effective date of such notice.'; and (2) by inserting at the end of subparagraph (F) the following: `In the case of any foreclosure on any federally-related mortgage loan (as that term is defined in section 3 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2602)) or on any residential real property in which a recipient of assistance under this subsection resides, the immediate successor in interest in such property pursuant to the foreclosure shall assume such interest subject to the lease between the prior owner and the tenant and to the housing assistance payments contract between the prior owner and the public housing agency for the occupied unit, except that this provision and the provisions related to foreclosure in subparagraph (C) shall not shall not affect any State or local law that provides longer time periods or other additional protections for tenants.'. SEC. 704. SUNSET. This title, and any amendments made by this title are repealed, and the requirements under this title shall terminate, on December 31, 2012. Legal opinion: The “Protecting Tenants at Foreclosure Act of 2009” (the Act) was signed into law on May 20, 2009. Questions have arisen about the applicability of the Act including to what loans it applies, when it is effective, the burden of proof of establishing a tenancy and other issues. · Does the Act apply to all foreclosed properties or only to properties securing “federally related mortgage loans?” This question arises due to the wording of Section 702 (a), which provides in pertinent part as follows: “In General- In the case of any foreclosure on a federally-related mortgage loan or on any dwelling or residential real property after the date of enactment of this title, any immediate successor in interest in such property pursuant to the foreclosure shall assume such interest subject to - -” Some have thought that the term “federally related mortgage loan” limited the application of this provision to VA, FHA, Fannie and Freddie loans. That is not the case. The term “federally related mortgage loan” is defined in RESPA (12 U.S.C. 2602, section 3), and that definition is incorporated into the Act. Thus all loans subject to RESPA are subject to the Act. The currently available legislative history of this section sheds no light on this issue, but I spoke personally to the legislative counsel for the Senate Banking Committee today and he confirmed that was the intention of the legislation. · When is the Act effective as to Notices to Vacate being served on tenants? The Act itself provides that it applies to “foreclosures…after the date of enactment,” so only Notices to Vacate issued pursuant to foreclosure sales that have taken place after May 20, 2009, are affected. This preserves the validity of Notices to Vacate issued after the effective date of the Act in relation to sales that were completed before May 20, 2009. · Who has to prove the existence of a tenancy? This important issue is not addressed by the Act, so common law principles determine the answer. Generally, any person claiming the benefit of an exception to a general provision of law has the burden of proof to establish that the exception applies to them. In California, a tenant who claims entitlement to the longer notice provision under CA eviction statutes has this burden. The same rule will apply to persons claiming to be tenants for purposes of invoking the 90 day notice under the Act. There is no penalty under the Act or under CA law for proceeding with a 3 day notice when the occupant is silent, except the risk of having to re-file the complaint based on the short notice if the tenant files an Answer asserting that the complaint was served prematurely. · What about oral tenancies? The Act makes no distinction between written and oral lease agreements, so it applies to all tenancies. This creates an obvious potential for fraudulent claims by occupants that they have an oral lease. This risk is made worse by the provisions of the Act that tenants be allowed to stay in possession for 90 days or the unexpired term of their lease if longer than 90 days. The worst case scenario would be a claim of an oral lease for a year, beginning on May 19, 2009. Fortunately, leases in excess of 364 days are not enforceable unless written, due to the Statute of Frauds. Thus, one year would be the longest term exposure for an oral lease. · The lease must be Bona Fide. The Act specifically excludes tenancies where the mortgagor (lease back) or the mortgagor’s child, spouse or parent is claiming the 90 day notice period. The Act also requires that the lease was “the result of an arms-length transaction,” which has an unclear meaning but seems intended to exclude leases with suspiciously tenant-favorable terms. The Act also specifically provides that the 90 day notice provision does not apply to leases with rent substantially below fair market value or where the rent is government subsidized. · Section 8 tenancies. The Act amends existing law to require the owner upon foreclosure to assume ownership subject any existing Section 8 agreement and to give 90 days’ notice to terminate the Section 8 agreement, unless state law provides a longer notice period. There is much room for future litigation concerning the provisions of this Act, and we can expect strong advocacy from the eviction defense bar about the meaning of any unclear provision. However, in California this should have limited effect on the eviction process. Its main effect will be to extend many, but not all, tenant notice periods for an additional 30 days. It will require brokers and agents to investigate, among other things, whether tenants are related to the former mortgagor so as to be excluded from the 90 day Federal notice requirement and subject only to the 60 day California notice requirement. It’s main effect will be to make landlords of our clients in those cases where tenants can establish a tenancy with an unexpired term in excess of 90 days at the time of the foreclosure sale. We are presently giving careful thought to how to assist our clients with this issue. Follow Ups: Re: new tenant law Kristine-CA 6:20 PM, 05/29/09 (2) Re: new tenant law Brian from the IE 9:34 AM, 06/02/09 (1) Re: new tenant law Conner Soules 5:25 PM, 06/02/09 (0) Post a Followup: Name : E-Mail : Subject : Comments: : Ward: I'm attaching the new tenant law and a legal opinion about the laws affect. I'd like to know if you agree with the conclusions. : TITLE VII--PROTECTING TENANTS AT FORECLOSURE ACT : SEC. 701. SHORT TITLE. : This title may be cited as the `Protecting Tenants at Foreclosure Act of 2009'. : SEC. 702. EFFECT OF FORECLOSURE ON PREEXISTING TENANCY. : (a) In General- In the case of any foreclosure on a federally-related mortgage loan or on any dwelling or residential real property after the date of enactment of this title, any immediate successor in interest in such property pursuant to the foreclosure shall assume such interest subject to-- : (1) the provision, by such successor in interest of a notice to vacate to any bona fide tenant at least 90 days before the effective date of such notice; and : (2) the rights of any bona fide tenant, as of the date of such notice of foreclosure-- : (A) under any bona fide lease entered into before the notice of foreclosure to occupy the premises until the end of the remaining term of the lease, except that a successor in interest may terminate a lease effective on the date of sale of the unit to a purchaser who will occupy the unit as a primary residence, subject to the receipt by the tenant of the 90 day notice under paragraph (1); or : (B) without a lease or with a lease terminable at will under State law, subject to the receipt by the tenant of the 90 day notice under subsection (1), : except that nothing under this section shall affect the requirements for termination of any Federal- or State-subsidized tenancy or of any State or local law that provides longer time periods or other additional protections for tenants. : (b) Bona Fide Lease or Tenancy- For purposes of this section, a lease or tenancy shall be considered bona fide only if-- : (1) the mortgagor or the child, spouse, or parent of the mortgagor under the contract is not the tenant; : (2) the lease or tenancy was the result of an arms-length transaction; and : (3) the lease or tenancy requires the receipt of rent that is not substantially less than fair market rent for the property or the unit's rent is reduced or subsidized due to a Federal, State, or local subsidy. : (c) Definition- For purposes of this section, the term `federally-related mortgage loan' has the same meaning as in section 3 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2602). : SEC. 703. EFFECT OF FORECLOSURE ON SECTION 8 TENANCIES. : Section 8(o)(7) of the United States Housing Act of 1937 (42 U.S.C. 1437f(o)(7)) is amended-- : (1) by inserting before the semicolon in subparagraph (C) the following: `and in the case of an owner who is an immediate successor in interest pursuant to foreclosure during the term of the lease vacating the property prior to sale shall not constitute other good cause, except that the owner may terminate the tenancy effective on the date of transfer of the unit to the owner if the owner-- : `(i) will occupy the unit as a primary residence; and : `(ii) has provided the tenant a notice to vacate at least 90 days before the effective date of such notice.'; and : (2) by inserting at the end of subparagraph (F) the following: `In the case of any foreclosure on any federally-related mortgage loan (as that term is defined in section 3 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2602)) or on any residential real property in which a recipient of assistance under this subsection resides, the immediate successor in interest in such property pursuant to the foreclosure shall assume such interest subject to the lease between the prior owner and the tenant and to the housing assistance payments contract between the prior owner and the public housing agency for the occupied unit, except that this provision and the provisions related to foreclosure in subparagraph (C) shall not shall not affect any State or local law that provides longer time periods or other additional protections for tenants.'. : SEC. 704. SUNSET. : This title, and any amendments made by this title are repealed, and the requirements under this title shall terminate, on December 31, 2012. : Legal opinion: : The “Protecting Tenants at Foreclosure Act of 2009” (the Act) was signed into law on May 20, 2009. Questions have arisen about the applicability of the Act including to what loans it applies, when it is effective, the burden of proof of establishing a tenancy and other issues. : : · Does the Act apply to all foreclosed properties or only to properties securing “federally related mortgage loans?” This question arises due to the wording of Section 702 (a), which provides in pertinent part as follows: “In General- In the case of any foreclosure on a federally-related mortgage loan or on any dwelling or residential real property after the date of enactment of this title, any immediate successor in interest in such property pursuant to the foreclosure shall assume such interest subject to - -” Some have thought that the term “federally related mortgage loan” limited the application of this provision to VA, FHA, Fannie and Freddie loans. That is not the case. The term “federally related mortgage loan” is defined in RESPA (12 U.S.C. 2602, section 3), and that definition is incorporated into the Act. Thus all loans subject to RESPA are subject to the Act. The currently available legislative history of this section sheds no light on this issue, but I spoke personally to the legislative counsel for the Senate Banking Committee today and he confirmed that was the intention of the legislation. : : · When is the Act effective as to Notices to Vacate being served on tenants? The Act itself provides that it applies to “foreclosures…after the date of enactment,” so only Notices to Vacate issued pursuant to foreclosure sales that have taken place after May 20, 2009, are affected. This preserves the validity of Notices to Vacate issued after the effective date of the Act in relation to sales that were completed before May 20, 2009. : : · Who has to prove the existence of a tenancy? This important issue is not addressed by the Act, so common law principles determine the answer. Generally, any person claiming the benefit of an exception to a general provision of law has the burden of proof to establish that the exception applies to them. In California, a tenant who claims entitlement to the longer notice provision under CA eviction statutes has this burden. The same rule will apply to persons claiming to be tenants for purposes of invoking the 90 day notice under the Act. There is no penalty under the Act or under CA law for proceeding with a 3 day notice when the occupant is silent, except the risk of having to re-file the complaint based on the short notice if the tenant files an Answer asserting that the complaint was served prematurely. : : · What about oral tenancies? The Act makes no distinction between written and oral lease agreements, so it applies to all tenancies. This creates an obvious potential for fraudulent claims by occupants that they have an oral lease. This risk is made worse by the provisions of the Act that tenants be allowed to stay in possession for 90 days or the unexpired term of their lease if longer than 90 days. The worst case scenario would be a claim of an oral lease for a year, beginning on May 19, 2009. Fortunately, leases in excess of 364 days are not enforceable unless written, due to the Statute of Frauds. Thus, one year would be the longest term exposure for an oral lease. : : · The lease must be Bona Fide. The Act specifically excludes tenancies where the mortgagor (lease back) or the mortgagor’s child, spouse or parent is claiming the 90 day notice period. The Act also requires that the lease was “the result of an arms-length transaction,” which has an unclear meaning but seems intended to exclude leases with suspiciously tenant-favorable terms. The Act also specifically provides that the 90 day notice provision does not apply to leases with rent substantially below fair market value or where the rent is government subsidized. : : · Section 8 tenancies. The Act amends existing law to require the owner upon foreclosure to assume ownership subject any existing Section 8 agreement and to give 90 days’ notice to terminate the Section 8 agreement, unless state law provides a longer notice period. : : There is much room for future litigation concerning the provisions of this Act, and we can expect strong advocacy from the eviction defense bar about the meaning of any unclear provision. However, in California this should have limited effect on the eviction process. Its main effect will be to extend many, but not all, tenant notice periods for an additional 30 days. It will require brokers and agents to investigate, among other things, whether tenants are related to the former mortgagor so as to be excluded from the 90 day Federal notice requirement and subject only to the 60 day California notice requirement. It’s main effect will be to make landlords of our clients in those cases where tenants can establish a tenancy with an unexpired term in excess of 90 days at the time of the foreclosure sale. We are presently giving careful thought to how to assist our clients with this issue. [ Follow Ups ] [ Post Followup ] [ The Forum Board ] [ FAQ ] WWWAdmin 2.0a © 1997 Matt Wright and DBasics Software Company, All Rights Reserved

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