Tenants in Foreclosure
New Laws and Updates
Tovah Flygare, Attorney, Southern Minnesota Regional Legal Services
e-mail: tovah.flygare@smrls.org
Tenants in Foreclosure: New
Laws and Updates
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•
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•
Generic Timeline
New Federal Law
State Law and updates
Q&A
Generic Timeline
***Timeline varies with different foreclosure agreements and processes***
Month 1 Month
minus 4- 1
6 weeks
Month Month Month Month Month Month
2
3
4
5
6
7
Notice
of
Sheriff
Sale
*given to
Redemption
Redemption
Redemption
Redemption
Redemption
Landlord in
possession
Landlord in
possession
Landlord in
possession
Landlord in
possession
Landlord in
possession
*tenant can
use security
deposit as
rent for last
month of the
redemption
period (MN
Stat.
504B.178)
occupant
*Landlord
must notify
prospective
tenant of
foreclosure
in writing
(MN Stat.
504B.151)
Sheriff
Sale
Property
sold at
auction to
highest
bidder
End of
redempt
-ion
Tenant must
get notice to
vacate from
new owner
under
Federal or
State law
New Federal Law
• PTFA 702
• bona fide tenant has
minimum of 90 days
notice from immediate
successor in interest.
• Bona fide tenant with
bona fide lease can live
out lease unless new
owner will occupy as
primary residence.
• PTFA 703 (Section 8)
• Foreclosure is not “good
cause” to terminate a
lease.
• New owner cannot
terminate lease because of
foreclosure unless new
owner is moving in as
primary residence and
gives 90-day notice.
• New owner bound by
HAP and lease.
New Federal Law: “Bona fide”
• Bona fide tenant: rents from mortgagor, not
mortgagor or mortgagor’s spouse, child,
parent;
• Bona fide lease: entered into before
foreclosure; result of arm’s length
transaction; rent is not substantially less
than market rate or is subsidized under
government program
State Law and Updates
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•
•
•
1. Landlord’s notice to Tenant
2. Lender’s Notice of Tenant’s Rights
3. New Owner’s Notice to Tenant
4. Utilities
– Pay and Deduct
• 5. Security Deposit
– Last month of redemption period
• 6. Mandatory Expungement
Landlord Notice to Tenant
• Minn. Stat. § 504B.151.
• Landlord must provide written notice to
prospective tenants about foreclosure or
contract for deed cancellation.
• Landlord can only make lease for the
shorter of: 2 months or the remaining time
of redemption or cancellation period.
Landlord Notice to Tenant:
Example
• Tenant signs a year-long lease and moves
into a property only to find there are only 2
months left of the redemption period
although Landlord never told tenant about
foreclosure.
• Tenant has a legal argument that the lease is
illegal, in some cases can use this to break
lease or void lease.
Lender Notice of Tenant’s Rights
• Minn. Stat. § 580.042.
• Foreclosing lender is supposed to give this
notice to tenants in a foreclosed property.
• Foreclosing lender usually only serves a
notice of the sheriff’s sale on whoever is at
the foreclosed property.
Example
• See attached example
Immediate Successor In Interest/
New Owner Notice to Tenant*
• After the end of the redemption period the
new owner (usually the foreclosing lender)
must give bona fide tenants 90-day notice to
vacate or let them live out their bona fide
lease.
– Careful about giving personal information to
debt collectors unnecessarily.
• If state law offers tenants more protection,
then state law applies.
Example
• See attached examples
Different requirements for
Section 8*
For section 8 tenants the new law amends section 8(o) to provide that in
the case of an owner who is an immediate successor in interest pursuant
to foreclosure during the term of the lease vacating the property prior to
sale shall not constitute other good cause, except that the owner may
terminate the tenancy effective on the date of transfer of the unit to the
owner if the owner (i) will occupy the unit as a primary residence and (ii)
has provided the tenant a notice to vacate at least 90 days before the
effective date of such notice.
In addition, in the case of any foreclosure on any property in which a
recipient of section 8 assistance resides, the immediate successor in
interest in such property pursuant to the foreclosure assumes such
interest subject to the lease between the prior owner and the tenant and
to the housing assistance payments contract between the prior owner and
the public housing agency for the occupied unit.
Utilities
Minn. Stat. § 504B.215
• Water
– Give notice to
Landlord
– Can pay current
charges
– Not responsible for
arrears, late fees
– Not subject to deposit.
• Gas & Electric
– Give notice to
Landlord
– Service must be
restored for at least one
billing period
– If less than 5-unit
building, tenant can put
account in own name
Security Deposit
Minn. Stat. § 504B.178, subd. 8
• Tenant may use security deposit for rent in
the last month of a contract for deed
cancellation period or mortgage foreclosure
redemption period.
Mandatory Expungement
• Minn. Stat. § 484.014, subd. 3.
• Expungement shall be granted for tenant of
foreclosed property if:
– Redemption period is over and tenant vacated
before the eviction action started; OR
– Tenant lived at property during redemption
period and did not receive notice to vacate
before eviction action.