The Federal Housing Administration (FHA) is a division of the Department of Housing and Urban Development (HUD) that insures mortgages issued by their approved lenders (mortgagees) on one-to-four unit residential (know as ‘single-family’) properties. In the event of a foreclosure, a mortgagee may try to collect on the mortgage’s insurance by conveying the property (transferring title of the property) to the FHA. In order to do so, the mortgagee must comply with HUD’s policy that, except in a limited set of circumstances, all single-family properties conveyed to HUD must be vacant. The mortgagee is also required to send notification of this policy to the head of every occupant household. This notice misleads occupants as to their rights as tenants in foreclosed properties secured by the Protecting Tenants in Foreclosure Act of 2009 (PTFA).
The PTFA states that any entity (including a bank) that acquires title to a property through foreclosure must honor the terms of any existing bona fide lease entered into before the complete transfer of title. In addition, the immediate successor in interest (new owner) must provide a 90-day notice to vacate to any bona fide tenant. The new owner cannot send a valid 90-day notice to vacate until they have acquired complete title to the property. Therefore, tenants have guaranteed occupancy rights in the property they are renting for a minimum of 90 days after the full transfer of title pursuant to a foreclosure. These restrictions also apply to anyone that the immediate successor in interest transfers the property to.
The notice HUD requires mortgagees to send to occupants must use the exact wording of set out in Appendix 40 in HUD Handbook 4330.1 and Appendix 1, HUD Property Disposition Handbook - One to Four Family (4310.5), Rev-2.
HUD also requires that mortgagees send this notice to the head of each occupant household 60-90 days before the mortgagee believes it will acquire title to the property. The notice informs the occupant that the mortgagee will likely gain title within that time period, that the mortgagee will then probably transfer title to HUD shortly thereafter, that the property must generally be vacant when transferred to HUD, and that in order for the tenant to remain an occupant of the property, the tenant must file an application within 20 days of receiving this notice and meet HUD’s conditions for continued occupancy.
This notice both misleads tenants and does not comply with the notification requirements of the PTFA in several ways. First, continued occupancy in the property pursuant to the PTFA cannot be conditioned on HUD’s approval.
Second, at the time the mortgagee sends the notice as required by FHA’s policy it is only a potential successor in interest in the property. The PTFA states that any valid notice to vacate must be sent by the actual successor in interest, after that entity has acquired complete title to the property.
Finally, the notice indicates that tenants who are not approved by HUD will have to vacate the property immediately after the mortgagee acquires title. This violates the PTFA’s guarantee that occupants can remain for the greater of the term of their lease and at least 90 days after the mortgagee (or any entity) has acquired title and gives the tenant proper notice to vacate.
Although HUD may require mortgagees to convey only vacant properties, the notice mortgagees are required to send to occupants misleads tenants and does not inform them of their rights. In addition, the policy encourages mortgagees to try to get around the PTFA since, in most cases, they will not be able to receive the insurance money until the property is empty.
The National Housing Law Project, The National Low Income Housing Coalition and The National Law Center on Homelessness and Poverty have tried to work with FHA and executives at HUD to change HUD’s notice so that it accurately informs tenants of their rights pursuant to the PTFA, but HUD has made no effective changes to the notice. Even if the HUD notification eventually complies with the PTFA, that is no guarantee that mortgagees will know about or comply with the PTFA.
Chapter 9 of HUD Handbook 4330.1 and Chapter 2 of HUD Handbook 4330.4 provide useful information for advocates working with an occupant or mortgagor of an FHA insured property that the mortgagee is trying to convey (transfer) to HUD. It is essential for tenants and advocates to understand that the PTFA trumps HUD policies and notifications. If a client receives the HUD notification from a mortgagee, they are still protected by, and should assert their rights under, the PTFA.
1. HUD handbook ref 4330.1, Ch. 9-11 Occupancy
3. HUD Handbook ref 4330.4 Ch 2 Conveyed Home Properties
Statutes, Regulations and Guidance
1. Public Law 111-22, tit VII as clarified and extended by HR 4173
2. 24 CFR 203.381 (occupancy of property)
3. 24 CFR 203.670 (conveyance of occupied property)
4. 12 U.S.C. 1709 (Insurance of Mortgages)
5. 12 U.S.C. 1710 (Payment of Insurance)
6. 12 U.S.C. 1715b (rules and regulations to carry out provisions of subsection)
7. 12 U.S.C. 1715u (authority to assist mortgagors in default)
8. 42 U.S.C. 3535(d) (delegation of authority by Secretary of HUD)
9. Protecting Tenants at Foreclosure Act: Guidance on Notification Responsibilities Under the Act With Respect to Occupied Conveyance, 75 Fed. Reg. 66,385 (October 28, 2010)
1. Flyer: Attention Tenants in FHA Insured Properties