Protecting Tenants at Foreclosure Act Summary

The Protecting Tenants at Foreclosure Act (PTAFA) protects tenants from eviction because of foreclosure on the properties they are renting. These provisions took effect on May 20, 2009, and will expire on December 31, 2012.

The tenant protection provisions apply in the case of any foreclosure on a federally related mortgage loan or on any dwelling or residential real property. They provide that "any immediate successor in interest" (usually a bank) in such a foreclosed property, will assume the interest subject to the rights of any bona fide tenant and will need to comply with certain notice requirements.

Under this law, the bank must provide tenants with a notice to vacate at least 90 days before the effective date of such notice. In other words, if the lease ends in less than 90 days, the new owner bank may not evict the tenant without giving the tenant at a minimum 90 days notice.

During the term of the lease, the tenant has a right to remain in the residence until the end of their lease and cannot be evicted, with two exceptions:

• When the property is sold after foreclosure to a purchaser who will occupy the property as a primary residence or, When there is no lease or the lease is terminable at will under State law. However, even when these exceptions apply, tenants must still receive 90 days notice before they may be evicted. The protections of this law apply to tenants under a "bona fide" lease or tenancy. A lease or tenancy is "bona fide" only if:
  • The mortgagor or a child, spouse, or parent of the mortgagor under the contract is not the tenant;
  • The lease or tenancy was the product of an arm's-length transaction; and;
  • The lease or tenancy requires the receipt of rent that is not substantially less than fair market rent or the rent is reduced or subsidized due to a federal, state, or local subsidy.

If the bank believes that the tenancy or lease is not bona fide, it can proceed with the eviction action under State law. If the tenant files a responsive pleading in which it claims that its tenancy or lease is bona fide, then the issue will become a question of fact for the court to determine. In the event that the court agrees with the tenant, the lender's eviction action will likely be dismissed. However, even if the action is dismissed, they might find that the tenant owes rent payments to the bank.

While PTAFA does not contain a provision allowing the bank to collect rent, it appears banks may be entitled to rent payments during the tenant's continued occupancy of the premises. Even though this portion of the law is unsettled, it appears that if the bank demands and collects rent, it is likely that the bank will have all the same obligations of a landlord under a lease. If the tenant fails to make rent payments, then the bank would be able to bring an eviction action against the tenant for failure to payment rent under State law.

FAQ's

Q. My landlord is going through mortgage foreclosure - how does this affect me as a tenant?

A. Often when tenants find out that their landlord is being foreclosed on, they are confused and unsure of their rights. The foreclosure process takes some time, often longer than the statutory 6 months. Under the new Protecting Tenants at Foreclosure Act signed in May 2009, the new owners (ie, the bank) of a property are encouraged to maintain existing leases and are required to give 90 days notice before an eviction.

Q. What is mortgage foreclosure and how does it work?

A. When a tenant fails to pay rent on their home, the landlord can start eviction proceedings to regain possession of their property. Likewise, when a landlord fails to make their mortgage payments, the bank or mortgage company can start the foreclosure process to gain ownership of the property and satisfy the landlord's debt.

Almost all mortgages are foreclosed by advertisement. The mortgage contains a power of sale clause that allows the lender to foreclose using this method. After the landlord has failed to make their mortgage payments for 2-3 months, the lender will begin the foreclosure process.

The lender will schedule a Sheriff's Sale and must publish notice of the foreclosure for four consecutive weeks in a local legal newspaper. At the Sheriff's Sale, your landlord's home will be auctioned to the highest bidder, which is typically the bank that holds the loan. After the home is sold, your landlord is entitled to a redemption period during which they may still buy back their home. This period is usually about 6 months. Only after the redemption period has ended is the property transferred to the new owner.

Q. How will I know if my landlord is being foreclosed on?

A. Your landlord is not required to notify you of the situation. However, you may receive mail regarding the situation addressed to "Occupant." According to Michigan law, the mortgage company must post a notice on the property within 15 days of advertising the foreclosure sale. This is not a move-out date! Remember, the preliminary foreclosure process takes about 6 weeks before auction, and is followed by a redemption period of about 6 months. Your landlord can reclaim their home at any time during this process. Only after the redemption period has ended does your landlord cease to be the property owner.

Q. What happens to my lease when my landlord is in foreclosure?

A. Your lease is valid until the redemption period has ended. Once the redemption period ends, the new owner (usually a bank) is encouraged, but not obligated, to honor the terms of a lease. If the new owner does not honor the lease, he or she (or the bank) must provide 90 days notice before an eviction can take place.

Q. Do I still need to pay rent during the redemption period?

A. Technically, your landlord still owns the property during this time and is therefore entitled to the rent. Often, a landlord that is losing their property will not always be concerned about the rent, but still has the right to enforce the lease.

If you decide to not pay, you should make sure to keep the necessary money until after you move (ideally, deposited in an escrow account to show good faith), as your landlord could still bring an eviction case for non-payment of rent. Should you decide to stay past the redemption period, you will probably not need to pay rent for that time (but the bank may require that you do). Still, it is a good idea to reserve that money until after you have moved out.

Q. Am I still entitled to the return of my security deposit?

A. Yes. The foreclosure may invalidate your lease before the end of the original fixed term. However, Michigan security deposit law still applies is this situation.

(Source: Michigan Tenant Counseling Program)

TOP

Back to Previous Page