Saturday, May 23, 2009

Foreclosed renters put in a very strong position..

This was passed as part of the "Helping Families Save Their Homes Act of 2009" (emphasis mine):

This title may be cited as the `Protecting Tenants at Foreclosure Act of 2009 '.
(a) In General- In the case of any foreclosure on a federally-related mortgage loan or on any dwelling or residential real property after the date of enactment of this title, any immediate successor in interest in such property pursuant to the foreclosure shall assume such interest subject to--
(1) the provision, by such successor in interest of a notice to vacate to any bona fide tenant at least 90 days before the effective date of such notice; and
(2) the rights of any bona fide tenant, as of the date of such notice of foreclosure--
(A) under any bona fide lease entered into before the notice of foreclosure to occupy the premises until the end of the remaining term of the lease, except that a successor in interest may terminate a lease effective on the date of sale of the unit to a purchaser who will occupy the unit as a primary residence, subject to the receipt by the tenant of the 90 day notice under paragraph (1); or
(B) without a lease or with a lease terminable at will under State law, subject to the receipt by the tenant of the 90 day notice under subsection (1),
except that nothing under this section shall affect the requirements for termination of any Federal- or State-subsidized tenancy or of any State or local law that provides longer time periods or other additional protections for tenants.
(b) Bona Fide Lease or Tenancy- For purposes of this section, a lease or tenancy shall be considered bona fide only if--
(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 arms-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 or the unit's rent is reduced or subsidized due to a Federal, State, or local subsidy.
(c) Definition- For purposes of this section, the term `federally-related mortgage loan' has the same meaning as in section 3 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2602).


So renters get at least 90 days. The lease survives foreclosure so they could get until the end of the lease unless the purchaser at trustee sale intends to occupy the property, in which case they can give the 90 day notice.

Foreclosing just got more expensive for the banks, Cash for keys will be more expensive or the timelines to get the house vacant will be longer. This additional risk will eventually be priced into mortgage rates once those rates return to a market based mechanism as opposed to the engineered rates we have now due to the 1.25 Trillion dollars worth of Federal Reserve purchases.

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