Tenant Rights in Foreclosure

Are you a renter in a property that is going through foreclosure? Did you know you have certain rights under a recently enacted federal law known as the “Protecting Tenants at Foreclosure Act” (PTFA)? Under this law, foreclosing mortgagees and persons who purchase tenant occupied residential property at foreclosure sale, have important obligations to tenants who reside in such properties.

What Are the Tenant Rights and Owner Obligations Under Federal and State Law?

If the tenants residing in the property have leases, they have the right to continue living in the property under the terms of the existing lease until it expires. If there is no lease the new owner of the property must give the tenants at least 90 days written notice to vacate.

If a tenant is residing in the property pursuant to a HUD Section 8 Housing Assistance Payment (HAP) contract, the new owner may not utilize the provision of the HAP contract and lease which permit the owner to terminate the tenancy for “other good cause” based on the owner’s desire to withdraw the property from rental use. Rather the tenant is entitled to remain until the expiration of the lease or 90 days, whichever is later.

The only exceptions to these rules are:

- if the owner wishes to make the premises his or her primary residence, 90 days notice to vacate is sufficient; or

- the tenancy in question is not a “bona fide tenancy” A lease or tenancy is bona fide if:

1. the mortgagor, or the child, spouse, or parent of the mortgagor is not the tenant;
2. the lease or tenancy was the result of an arms length transaction; and
3. the rent for the unit is not substantially less than market rent for the property, unless the unit’s rent is reduced or subsidized due to a Federal, State, or local subsidy.

Foreclosed property occupied by tenants is “restricted property” pursuant to NH RSA 540:1-a I,II unless the property is a single family home (NH RSA 540:1-a,I (d). Foreclosing mortgagees and those who purchase restricted properties from them must not only give at least 90 days written notice to vacate prior to evicting a tenant (if the tenant doesn’t have a lease providing for a longer period in residence), but the owner must prove “good cause” for eviction. Keep in mind that the mere fact of foreclosure on a multiunit rental property is not necessarily good cause. Even if there is no lease and the property is “non-restricted” the new owner will still have to provide the tenant with 90 days notice to vacate and use the judicial eviction process if the tenant doesn’t vacate within the 90 days.

It is critically important for the mortgagee or purchaser of a renter occupied residential property at foreclosure to remember that under the PTFA he or she is stepping into the shoes of the landlord until the tenancy is terminated pursuant to the requirements of PTFA and RSA Chapter 540. This means that the mortgagee or new owner must abide by the terms of the existing lease or oral rental agreement. Thus if the lease or rental agreement calls for certain utilities to be provided by the landlord, the new owner must do likewise. Failure to do so is likely to result in courts issuing injunctions against property owners and/or damages awards for wrongful eviction.

Source: Elliott Berry, Esq., Managing Attorney, New Hampshire Legal Assistance

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