Protecting Tenants from Foreclosure

by 29 Mar 2012

( -- With the collapse of the real estate market and the resulting bank foreclosures on hundreds of thousands of residential rental properties, often tenants residing as leaseholders in residential properties become collateral victims and are forced to vacate their leaseholds, often with minimal notice. As a result, one of the most frequently asked questions posed to real estate lawyers today is, "What are the rights of a tenant when the property they are occupying has been foreclosed by the bank?"

In response to this problem, the Obama Administration enacted and approved a bill in May of 2009, known as the Protecting Tenants at Foreclosure Act of 2009, as part of Title VII of the Helping Families Save Their Homes Act of 2009 and codified at 12 U.S.C. 5220.  Enacted during a period when unprecedented numbers of foreclosures were occurring across the country, the Act ensures that tenants receive appropriate notice of foreclosure and are not abruptly displaced.

Under the Act, a lender or other immediate successor-in-interest, generally the purchaser who acquires residential real property by virtue of a foreclosure sale on a federally related mortgage loan, must provide bona fide tenants residing in the property with notice to vacate of at least 90 days. 12 U.S.C. 5220 (a)(1)

Moreover, if the tenant in possession has in effect a valid and existing bona fide lease, the purchaser at the foreclosure sale takes the residential real property subject to any remaining term of the lease.

These provisions, however, do not apply where the purchaser at the foreclosure sale is not the bank or an investor but a purchaser who intends to occupy the property as a primary residence.

Additionally, to fall within the Act, a bona fide lease must be entered into prior to the date of the notice of foreclosure, which is defined as ''the date on which complete title to a property has been transferred to a successor entity or person as a result of an order of a court or pursuant to the provisions in a mortgage, deed of trust, or security deed.''

A bona fide lease is one in which: (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
arm’s-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. 12 U.S.C. 5220 (a)(2)

The protections provided by the Act will be in place till December 31, 2014, when they are set to expire.


This is an article by attorney Mitchell Reed Sussman. Mitchell is a California real estate attorney specializing in real estate, foreclosure and bankruptcy. His website is



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