On May 20, 2009, the President signed into law the "Helping Families Save Their Homes Act of 2009." (the "Act"). If the House had succeeded, we would be talking about some fairly significant changes in Bankruptcy law, notably with respect to residential mortgages. These provisions did not, however, make the Senate version of the bill, nor the final legislation to come out of conference and become law.
The Act contains a wide range of provisions designed to offer protection to homeowners facing foreclosure. My focus here, however, will be the "Protecting Tenants in Foreclosure Act of 2009," popularly known as the other "Title VII."
The purpose of the other Title VII is to afford protection to tenants at will or lessees who occupy property that is foreclosed. The legislation applies to the foreclosure of any federally related mortgage loan, or, to the foreclosure of any "dwelling or residential real property." The party taking title at forclosure takes subject to certain rights in favor of tenants or lessees which may be summarized as follows:
A. Bona fide tenant at will must be given 90 days before eviction.
B. If there is a bona fide lease in place, the tenant may remain until the end of the term, except that the lease may be terminated and the tenant evicted after the 90 day notice if the purchaser at sale will occupy the property as a primary residence.
C. A tenant or lessee is "bona fide" when:
1. The lease is to someone other than the mortgagor, or mortgagor's child, spouse or parent;
2. The lease or tenancy resulted from an arm's length transaction;
3. The rent payable is not substantially less that fair market value.
It is worthy of note that in Alabama most leases are never recorded, nor are they required to be in writing. I make it a practice to announce at foreclosure sales that the property is subject to any unrecorded leases, whether written or oral, and include appropriate language in my foreclosure notice and any deed given. While I don't expect this legislation to pose a significant problem for most of my lending clients, here is a question that bears mentioning: In Alabama, following foreclosure, many occupants will hold over. You can give them the notice to vacate or risk losing their redemptive rights (big deal, huh!), or, ultimately evict. Does the Other Title VII mandate a 90 day notice? I think not, given the requirements that the tenancy is "bona fide." I think this would require mutual agreement that a tenancy exist. But be warned that if you acquiesce in the occupant remaining, you may risk creating a tenancy that implicates the Other Title VII. The good news is that the Other Title VII provisions sunset in December 31, 2012.
