Protecting Tenants at Foreclosure Act of 2009

On May 20, 2009, President Obama signed into law Senate Bill 896, also known as the "Helping Families Save Their Homes Act of 2009."  Section 702 of that Act – the "Protecting Tenants at Foreclosure Act" is very broad in scope and affects the ability of the new owner of certain foreclosure property (including Section 8 properties) to take immediate possession of that property. 

The new Act has effectively mandated a tenant-friendly "non-disturbance clause", common in commercial leases, into the residential landlord-tenant world.  The Act now requires landlords to provide tenants residing in foreclosed residential properties to be provided 90 days advance notice to vacate the property.  However, except where the purchaser intends to occupy a given property as the primary residence, the terms of any bona fide lease remains in effect.

A lease or tenancy must meet the following requirements to be a bona fide lease: (1) The tenant cannot be the mortgagor or the child, spouse, or parent of the mortgagor; (2) The lease or tenancy must be the result of an arms-length transaction, and; (3) The rent required under the lease cannot be substantially less than fair market rent for the property or the rent is subsidized by a Federal, State or local subsidy. 

This is a watershed change in the law and now provides residential tenants protections that, though common in commercial leases, rarely have been seen in the residential context.  It also brings the law a small step closer to the long-past English feudal system of attornment, whereby a a new landlord had to obtain the consent of the tenant before becoming the new landlord.  Such a system was abolished in 1705, but it is clear that the pendulum is swinging towards tenant protections.  In light of the massive foreclosure wave that has swept this country, it is not surprising to see such a change.  A lot of unsuspecting tenants were left holding the bag after their landlord lost the property to foreclosure.  For what it is worth though, such a change is temporary.  The Act sunsets at the end of 2012.