The Protecting Tenants at Foreclosure Act of 2009 (PTFA) ensures that if you’re renting a home that goes through a foreclosure, you have enough time to find a new place to live. Under this federal law, tenants may stay in the property for the duration of an existing lease or at least an additional 90 days after a foreclosure, depending on the circumstances. Your state’s laws might even give you some more time to remain in the home.
Read on to get further details about federal protections under the PTFA, as well as protections under state laws, for tenants after a foreclosure.
Before the PTFA, most renters—even those with leases—had to move out of a rented property after the landlord went through a foreclosure. Eviction following the foreclosure usually happened rather quickly because of a common rule in most states: If the mortgage or deed of trust was recorded before the lease, the foreclosure wipes out the lease. This rule is known as the “first in time, first in right” rule. As a result, tenants in foreclosed homes became month-to-month renters, and the new owner could terminate the tenancy after providing proper notice under state law.
After the economic crisis began in 2007, millions of homes went into foreclosure and tenants often found themselves quickly put out on the street. To assist tenants in this predicament, President Obama signed the PTFA into law on May 20, 2009. Once the PTFA went into effect, a bank that took over a property after the landlord failed to make the loan payments was no longer able to kick the tenants out right away. But then the PTFA expired on December 31, 2014.
The Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155), which President Trump signed into law on May 24, 2018, repealed the PTFA’s sunset date. As a result, the PTFA’s protections for renters after a foreclosure are back in effect permanently as of June 23, 2018, which is 30 days after the enactment of the Act.
The PTFA (12 U.S.C. § 5201 and following) provides protections to bona fide tenants who have a lease as well as those who don’t, like month-to-month renters.
Protections for tenants with a lease. In most cases, tenants who enter into a bona fide lease before the notice of foreclosure may stay in the home until the end of the lease term. But if the buyer who purchased the property at the foreclosure sale intends to move into the home, that buyer may terminate the tenants' lease after giving them 90 days' notice.
Protections for renters who don’t have a lease. Renters who don’t have a lease, like month-to-month renters, or those with a lease that can be terminated at will, get 90 days’ notice before having to move out of the property. Importantly, the PTFA also provides that if state law gives a more generous amount of time for renters to stay in the home, that longer period applies. (To learn more about tenants’ rights in foreclosure, see Rights of Renters in Foreclosure.)
In the years after the PTFA expired, some states—like Illinois and North Carolina—implemented their own versions of the law to protect tenants after a foreclosure. Usually, state laws that provide protections to tenants after a foreclosure are pretty similar to the PTFA.
Under Illinois law, for instance, the new owner may terminate a bona fide lease at the end of the lease term by giving the tenants at least 90 days' written notice. Though, like with the PTFA, if the new owner intends to occupy the property as a primary residence, the owner can end the lease by giving no less than 90 days' written notice. In the case of a month-to-month or week-to-week lease, the new owner may terminate the lease by giving at least 90 days' written notice. (735 Ill. Comp. Stat. § 5/9-207.5.) (To get more details about the Illinois law that protects tenants after a foreclosure see, Illinois Renters Caught in Foreclosure: What Are Your Rights?)
If you’re renting a home that’s going through foreclosure—or has already been foreclosed—and need help enforcing your rights under the federal PTFA, consider talking to an attorney. An attorney can also advise you about any state laws that provide additional protections beyond the PTFA.
Also, a lease-holding tenant who’s required to move out so that the new owner can move in might consider suing the former landlord in small claims court. An attorney can tell you more and advise you about options for your particular circumstances.