Protecting the Property Manager at Foreclosure: What You Need to

Report
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.

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