Notice of Sale (at least 21 days before sale) Default Notice to Cure (20 days) Foreclosure Tenant’s Rights Before the Act • Prior to 2009, tenants in Texas had no right to remain in rental properties after a foreclosure, unless the lease was superior to the mortgage. • Note: Be sure to look for subordination clauses. • Once a building is purchased at a tax foreclosure sale or a trustee’s (non-judicial, under deed of trust) foreclosure sale, if the purchaser chooses not to continue to lease, the purchaser must give a residential tenant of the building at least 30 days written notice to vacate, if the following conditions are true: 1. The purchase at the foreclosure sale takes place under a lien superior to the tenant’s lease; 2. The tenant timely pays rent; and 3. The tenant is not otherwise in default under the tenant’s lease after foreclosure. The Protecting Tenants at Foreclosure Act • In response to the 2008 foreclosure crisis, Congress enacted The Protecting Tenants at Foreclosure Act of 2009. It was later amended in 2010. • The PTFA will expire on December 31, 2014. • Currently, bills in both the House and Senate have been filed to make The Protecting Tenants at Foreclosure Act permanent. However, all bills are still in committees. The Protecting Tenants at Foreclosure Act What does the PTFA do? Generally, the PTFA protects tenants from eviction because of foreclosure on the properties they occupy. The Protecting Tenants at Foreclosure Act When does the PTFA apply? The PTFA applies in the case of any foreclosure on a: 1. Federally-related mortgage loan; or 2. On any dwelling or residential real property. The Protecting Tenants at Foreclosure Act • Under the PTFA, any immediate successor in interest in such a foreclosed property, including a bank that takes title to a house upon foreclosure, will assume the interest subject to the rights of any bona fide tenant. • Immediate successor in interest is the person or entity who takes legal title to the property after the foreclosure sale. • Bona fide tenant or tenancy means: 1. The tenant is not the mortgagor, or the child, spouse, or parent of the mortgagor; 2. The lease or tenancy is the result of an arms-length transaction; and 3. Rent is not substantially less than fair market rent for the property (or that the rent is reduced or subsidized) The Protecting Tenants at Foreclosure Act • The bona fide tenant is allowed the occupy the premises until the end of the remaining term of the lease, with two exceptions: 1. When the property is sold after foreclosure to a purchaser who will occupy the property as a primary residence, or 2. When there is no lease or the lease is terminable at will under state law. • The immediate successor in interest must provide tenants with a notice to vacate at least 90 days before the effective date of such notice. Best Practices for the Property Manager According to Paragraph 4(I) of the TAR form 2201, Residential Leasing and Property Management Agreement: Best Practices for the Property Manager • Document everything during this time. • Familiarize yourself with Paragraph 4(I) of TAR form 2201, Residential Leasing and Property Management Agreement. • Consider providing Tenant(s) TAR form 2220, General Information for Tenant of Property Facing Foreclosure. • Do not give tenant or owner legal advice. If they have questions regarding their rights or obligations, refer them to an attorney. Questions What are my obligations if I am aware that the owner is not making his payments, but the tenant is still paying rent? If using TAR form 2201, Residential Leasing and Property Management Agreement, follow the procedures in paragraph 4(I). Remember, while you do not owe fiduciary duties to the tenant as the property manager, under both TREC Rules and NAR Code of Ethics, you do have an obligation to treat all parties honestly and fairly. Therefore, if asked by a tenant, disclose. If foreclosure process is initiated, you may also provide the tenant with TAR form 2220 General Information for Tenant of Property Facing Foreclosure. Additionally, whether or not the landlord is making mortgage payments, is separate from the tenant’s obligation to pay rent pursuant to a lease. Questions Do I keep collecting rents once the property owner receives notice of foreclosure, and what do I do with the rent I have received? Again, if using TAR form 2201, Residential Leasing and Property Management Agreement, follow the procedures in paragraph 4(I). Questions Who is entitled to the security deposit? If using TAR form 2201, Residential Leasing and Property Management Agreement, follow the procedures in paragraph 4(I). Broker may give Owner 15 days to cure the delinquency and can freeze any funds received. If delinquency is not cured after the 15 days AND the foreclosure process is initiated, Broker may deduct fees, terminate the agreement, and return any security deposit being held by Broker to a tenant of the Property. Questions If the tenant pays rent to the current landlord and then receives written notification of a foreclosure sale, does the tenant also have to pay rent to the new landlord? No. The Texas Property Code 24.005(b) states that if during the month of the foreclosure sale, the tenant pays the rent to the landlord before receiving any notice of the foreclosure sale or pays rent to the foreclosing lienholder or the purchaser at foreclosure not later than the fifth day after receipt of a written notice of the name and address of the purchaser that requests payment, the tenant is considered to have timely paid the rent. Questions How can a tenant find out if the rental property they reside in has been foreclosed or will be foreclosed? Aside from asking the owner or property manager, if the tenant suspects that foreclosure has occurred, the tenant could: 1. Check to see if the notice of foreclosure sale is available to the public online via a county clerk’s website for the county in which the property is located; 2. Visit the county courthouse and review the notices of foreclosure sale. 3. Finally, some larger cities have services such as a foreclosure hotline, which can verify impending foreclosures up to three weeks in advance.