BiggerPockets

I can't believe this hasn't been discussed since the bill was signed into law back in on May 20. Senate bill 897 Helping Families Save Their Homes Act of 2009 also known as the Protecting Tenants at Foreclosure Act of 2009 was signed into law. The law allows renters to stay in home that is foreclosed on. Basically the law provides that the terms of the lease must be honored after the foreclosure. If there are less that 90 days left in the leas the renter must be given 90 days noticed. The law is supposed to expire after December 31, 2012. The law also applies to properties bought by an investor, so a property that currently has tenants, the lease would have to be honored. Any thoughts?

I'm not sure, but you idea sounds like a scam Dwight. Am I crazy?

AHAHA yea, i couldnt think of anything else? Good topic to know about! But he asked for a good thought, and thats all i could come up with!

Now that you mention it has to be illegal... I wonder if it really is? I bet there is a loophole somewhere. Atleast the for the owner to keep collecting rent you know? even when he stopped paying 4 months ago on the rental and has 3 mo left of income. THATS PERFECT! Now he has a down payment if he is renting himself to move into my owner financed home!

There was an update to this in the recent bank reform bill. This link will return google search results; if you look at the google cache it will have (most of) the pertinent text highlighted in yellow:

Google search

That seems to open up lots of shady ways to take advantage of this. Picture the defaulted borrower giving a long-term lease for a pittance to some friend (or shady investor). The lender's remedy in such a scenario normally is loan acceleration and foreclosure - both of which have already happened, so no remedy seems to exist...

Excerpt from this law, taken from this link:
http://www.nlihc.org/doc/701-704-Public-Law-111-22.pdf

SEC. 702. EFFECT OF FORECLOSURE ON PREEXISTING TENANCY.
(a) In General- In the case of any foreclosure on a federally-related mortgage loan or on any dwelling or
residential real property after the date of enactment of this title, any immediate successor in interest in such
property pursuant to the foreclosure shall assume such interest subject to--
(1) the provision, by such successor in interest of a notice to vacate to any bona fide tenant at least 90
days before the effective date of such notice; and
(2) the rights of any bona fide tenant, as of the date of such notice of foreclosure--
(A) under any bona fide lease entered into before the notice of foreclosure to occupy the premises
until the end of the remaining term of the lease, except that a successor in interest may terminate
a lease effective on the date of sale of the unit to a purchaser who will occupy the unit as a
primary residence, subject to the receipt by the tenant of the 90 day notice under paragraph (1); or
(B) without a lease or with a lease terminable at will under State law, subject to the receipt by the
tenant of the 90 day notice under subsection (1),
except that nothing under this section shall affect the requirements for termination of any Federal- or
State-subsidized tenancy or of any State or local law that provides longer time periods or other additional
protections for tenants.
(b) Bona Fide Lease or Tenancy- For purposes of this section, a lease or tenancy shall be considered bona fide
only if--
(1) the mortgagor or the child, spouse, or parent of the mortgagor under the contract is not the tenant;
(2) the lease or tenancy was the result of an arms-length transaction; and
(3) the lease or tenancy requires the receipt of rent that is not substantially less than fair market rent for
the property or the unit's rent is reduced or subsidized due to a Federal, State, or local subsidy.
(c) Definition- For purposes of this section, the term `federally-related mortgage loan' has the same meaning as in
section 3 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2602).

The limitation to bona fide and market value rents are there, so those possibilities get eliminated. But the new law revises the definition that is to be used for "notice of foreclosure" - it changes this to when the deed is recorded! That's the highlighted text that I was referring in that previous post. So if there is a redemption period, or if foreclosure deeds are issued slowly ...