What Happens to Renters When Their House Goes Into a Deed in Lieu?
Renters across the country have lost their homes with little or no warning due to their landlords' mortgage defaults, according to the National Low Income Housing Coalition. As a result, tenants make up nearly 40 percent of the households facing foreclosure. Nolo reports that figures in some cities, such as Minneapolis, are substantially higher. The 2009 Protecting Tenants at Foreclosure Act that regulates foreclosure-related eviction also applies to tenants whose landlords opt for deeds in lieu of foreclosure.
Deed in Lieu of Foreclosure
A deed in lieu of foreclosure is an alternative to foreclosure that's slightly less damaging to the landlord's credit. In a foreclosure, the lender forcibly repossesses a home after a court ruling grants it the rights of ownership. In a deed in lieu, on the other hand, the homeowner volunteers the deed to the lender and the lender accepts the deed in place of, or in lieu of, pursuing a foreclosure action.
Protecting Tenants at Foreclosure Act
The 2009 act is a national law that gives tenants a minimum amount of protection in each state, notes the National Low Income Housing Coalition. The Dodd-Frank Wall Street Reform and Consumer Act expands the 2009 act to include homes owned by landlords who merely have received notices of foreclosure, even if the notices result in a voluntary deed in lieu rather than foreclosure. State laws that offer tenants more protection than the national law provides supersede the national law.
Protections Against Eviction
The law mandates that a tenant's lease remains valid for its full term despite the transfer of ownership, as long as the lease begins before the foreclosure notice is filed. An at-will tenant who has no lease must be given 90 days' notice to vacate after the landlord receives the foreclosure notice. Should a landlord who has been served notice sell the property to someone who'll live in it as a primary residence, the new owner can force the tenant out within 90 days whether or not the tenant has a lease.
Eligibility
The law extends protection to "bona-fide tenants." It defines a bona-fide tenant as one who does not own the home and has not mortgaged it, and is not the immediate family member of an owner or mortgagor. The tenancy must have been created as an arms-length transaction, meaning that the tenant can't have profited from it or served as a "straw" tenant for the sake of creating the appearance of a legitimate tenancy where none existed. Finally, the tenant's rent can't be substantially below fair market value. The law considers Section 8 voucher holders who meet these criteria to be bona-fide tenants.
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