Real estate investors seeking to purchase properties through foreclosure should be aware of the Protecting Tenants at Foreclosure Act (PTFA) (12 USC 5220).  The PFTA is a federal law that provides safeguards for tenants facing eviction from rented properties subject to foreclosure.   

Before enactment of the PTFA most renters, including those with existing leases had to move out of a rented property promptly after the landlord went through a foreclosure.  This was the case because of the “first in time, first in right” rule, which dictates that a mortgage or deed of trust recorded before the lease has the effect of wiping out the lease.  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. 

The PTFA enables renters whose homes were in foreclosure to remain in their homes for at least 90 days or for the term of their lease, whichever is greater.  In addition, tenants with existing leases are allowed to stay in the home until their lease expires. 

PTFA Coverage

The PTFA applies to all foreclosures on a federally related mortgage loan and all types of residential properties throughout the nation, The statute provides protections only to “bona fide” tenants. The PTFA defines a “bona fide tenant” as a person in possession of the property—with or without a lease—if:

• the tenant is not the mortgagor or the child, spouse, or parent of the mortgagor
• the lease or tenancy was an arms-length transaction, and
• the lease or tenancy requires rent that is not substantially lower than fair market rent, or is reduced or subsidized due to a federal, state, or local subsidy.

The PFTA does not override state laws that are more protective for renters. 

PTFA Protections

As indicated, the PTFA allows renters with leases to remain at the foreclosed property until expiration of the lease.  Existing leases are honored unless the new owner will move into the foreclosed property.  In that scenario, the new owner can terminate the lease on 90 days’ notice, even when the tenant has a lease that extends beyond 90 days after foreclosure.

Renters who don’t have a lease, such as month-to-month renters, or those with a lease that can be terminated at will, are entitled to 90 days’ notice before having to move out of the property.

Please contact Lynx with any questions regarding the above, and whenever you’re in need of eviction services. We can be reached at 888-441-2355 or [email protected].  Our knowledgeable staff is standing by to start your case or answer any inquiries you may have.