Tenants and Foreclosure

Foreclosures on rental properties pose an often overlooked threat to tenants. When a landlord-owner defaults on a mortgage and isn’t able to resolve the delinquency, ownership of a tenant’s home can transfer through a foreclosure sale, leaving the tenant with a new landlord and a host of potential problems, including insufficient information to continue making rent payments, deterioration of the property, utility shutoffs, loss of security deposits, and eviction. In addition to the financial and other costs of relocation, foreclosure-related evictions can also result in negative credit reporting, hurt a renter’s ability to find new housing, or place Section 8 voucher or other rental assistance at risk.

From 2009 through 2014, the federal Protecting Tenants at Foreclosure Act (PTFA) provided tenants in foreclosed properties, including those in subsidized housing programs, with some basic protections against hasty eviction by new owners. After the PTFA expired, renters had to rely on a patchwork of state and local laws to shield them from foreclosure-related displacement.  For several years, advocates around the country pushed for revival of the PTFA. Those efforts paid off in 2018 with passage of a permanent PTFA that went into effect on June 23, 2018.

In most situations, the PTFA requires the new owner after a foreclosure to either (a) provide the tenants with 90 days’ notice before initiating any post-foreclosure eviction, or (b) honor a tenant’s existing lease if the lease term extends beyond the 90-day notice period. The PTFA’s coverage is very broad, including tenants in HUD-insured and HUD-subsidized properties as well as tenants with Section 8 Housing Choice Vouchers (HCV), but PTFA protections are subject to some exceptions and limitations.  The PTFA applies after a foreclosure on any type of residential properties.  One-unit single family homes are covered, as are multi-unit properties.  The law applies in cases of both judicial and non-judicial foreclosure. Bona fide tenants (as defined in the statute) with lease or tenancy rights of any kind, including month-to-month leases or leases terminable at will, are protected as long as the tenancy was in effect as of the date of transfer of title at foreclosure. The PTFA applies in all states, but it does not override more protective state and local laws, including local rent control and just cause ordinances.

Section 703 of the PTFA gives Section 8 HCV tenants additional protections allowing them to continue occupancy under the existing lease and requiring a new owner to assume the housing assistance payment contract associated with the lease. Section 703 also explicitly excludes transfer of ownership via foreclosure as “good cause” for termination of such a lease.

Some states also have their own post-foreclosure tenant-protection statutes that mandate advance notice to tenants of any upcoming foreclosure, require property maintenance by new owners, require utility companies to continue to provide service after a foreclosure and/or mask records of certain foreclosure-related evictions.  In addition, a number of jurisdictions have just cause ordinances that tenants have used successfully to defend against post-foreclosure evictions.