Chicago, IL · Member since 2012 · 6 posts · 0 votes
We recently purchased a house from foreclosure auction with a tenant in it. The previous owner seems to have abandoned it. The rental lease was signed with HOA since HOA was in possession of the house before the foreclosure sale. The current tenant pays rent to HOA directly and is current on his rent. The lease won't end until July 2012. Our intention is not to rent but to move in ourselves. So my question is do we need to honor the lease? If not, do we need to give 90 day notice? If we do need to honor the lease by law, is cash for key our best bet?
Real Estate Investor · Palos Heights, IL · Member since 2011 · 44 posts · 28 votes
13y
K. Marie Poe
Yes, I agree that serving the 90 day notice asap is a prudent measure.
I was just wondering if J Chen has had any contact with the tenant?
I would first go knock on the door and talk to the tenant about their situation before paying for legal counsel. There is always a chance that they will leave voluntarily.
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
13y
The tenants in foreclosure act requires that you honor the terms of the lease for bona fide tenants (as long as they are paying fair market rent). But there is a exemption for new owners planning to live in the property. The tenant is still entitled to 90 days notice. I advise that you don't do anything before you get legal assistance with the 90 day notice You want to make sure the tenant doesn't think their lease is binding and make you prove up that you will be occupying. That would just waste everyone's time and money. You may be able to work something out with the tenant in order to occupy sooner, but you want to do the noticing by the book if you need to rely on an eviction.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y
The Protecting Tenants At Foreclosure Act has another exclusion. The lease must have been signed before the foreclosure started. If the lease was signed after the foreclosure started (i.e., the first notice for the foreclosure was filed), the act doesn't apply at all.
How was the HOA in possession of this property? Had they foreclosed, took the property back and then rented it out? And then another lienholder foreclosed?
Who was the foreclosing lender? Not all loans are covered by this act. Specifically: "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)."
Chicago, IL · Member since 2012 · 6 posts · 0 votes
13y
Jon, the lease was renewed earlier this year which is after the notice of default. But I read it somewhere that there is a new amendments to the Protecting Tenants At Foreclosure Act that changed the date of notice of default to date of sale. Basically, as long as the lease is signed before the sale, it is protected by this Act.
This case has started in 2007 and in 2008 court ruled to vacate the property. But the foreclosing lender went bankrupt and mortgage was sold New York Mellon bank, which reinstated this case in 2012 (under a new case number). I guess HOA took possesion of this house since the previous owner vacated and rent it out in order to recover the association dues.
Chicago, IL · Member since 2012 · 6 posts · 0 votes
13y
Poe, I was actually thinking to give him notice to vacate in 90 days myself. So you think this needs the involvement of an attorney? Also does this 90 days start from the date of sale or the date the deed is transferred to me?
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
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Jon Holdman The definition of the "notice of foreclosure" as it pertains to the Tenant's in Foreclosure Act is a disaster. The law is mondo vague and uses language that doesn't apply to many states' foreclosure process. Here in CA we have a "Notice of Default" and we have "Notice of Trustee's Sale" and neither are considered "notice of foreclosure". CA case law has determined that notice of foreclosure is the date when the property is sold at trustee's sale law. Good for tenants, bad for buyers at trustee's sale.
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
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J Chen Thanks for posting that link. In CA, your tenant's lease would be valid. But I was not aware that there was a federal revision of the law as well.
The reason I would get legal help at this point is because if for some reason your tenant doesn't leave after 90 days and needs to be evicted, you'll want your notice to have been perfectly in order. There might be a special notice or language that gets used when it comes to a foreclosure sale buyer planning to occupy. I know if I were the tenant, and I wanted more time in the property, I would make you prove that you were occupying before I'd vacate. Think about it. Everyone's lease would be useless if buyers at foreclosure sale could just say they are planning to occupy the property.
Hopefully you'll be able to work it out with the tenant in a mutually beneficial way. But since you bought a property with a tenant with a lease, you are now a landlord and need to use the lawful procedures.
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
13y
Your question about serving the notice is exactly why you should get legal help. The 90 days notice of termination does not start at the date of sale. It starts when the notice is executed and properly delivered. And your ownership has to be complete and perfected per your state law when you give notice. You'll want to check your state law for the details about ownership after foreclosure.
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
13y
Originally posted by Jon Holdman:
Who was the foreclosing lender? Not all loans are covered by this act. Specifically: "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)."
This has been torn apart as well, as the law applies to all federally related mortgage loans OR any residential property (1-4 units and condos). I haven't heard or seen where any loans are exempt from TIFA as long as the property qualifies.
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
13y
Originally posted by K. Marie Poe:
... the Tenant's in Foreclosure Act ... Good for tenants, bad for buyers at trustee's sale.
K. Marie Poe - If they wanted it to be good for buyer's at Trustee sale, don't you think they would have named the law a bit differently? Rather than "Protecting Tenants at Foreclosure", they could have name it "Protecting Trustee Sale Buyers at Foreclosure" :) The intent is clear enough given the name ...
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y
Interesting. I guess that's why laws end up being dozens or hundreds of pages.
The bottom line is that this act applies to essentially all foreclosures? And if the tenant has a lease before the auction, they get to stay for at least 90 days after the auction?
I would agree that you should consult with a lawyer, J Chen. Hopefully, this will go smoothly, but you want to follow the correct process.
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
13y
My understanding is that it applies to all foreclosures on residential 1-4s and condos, through end of 2014. If someone has a different understanding, I'd like to know about it. Any third party buyer at sale and any lender getting the property back has this lease issue to contend with. Tenants have to pay rent and abide by the terms of the lease. But you're essentially a landlord for at least 90 days or the term of the lease if you buy at sale.
Real Estate Investor · Palos Heights, IL · Member since 2011 · 44 posts · 28 votes
13y
J Chen
Have you tried offering cash for keys yet? It may turn out to be the easiest and cheapest option in this scenario.
The eviction process in Chicago can take six months or longer. It could end up costing thousands in legal fees.
I have had success getting tenants to leave by finding them another unit in the same development & paying for their moving costs (a few hundred dollars). They are usually willing to leave, but just don't want to go through the hassle of finding another place.
I would contact the tenant first and try to work something out before starting the eviction process.
Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes
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Let's say the trustee sale buyer claimed that s/he will occupy the property & serves a 90-day notice, but then turns around & flip the property instead. What recourse does the former tenant have? Just curious.
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
13y
Minh L. I'm curious too if a lease holding tenant has any recourse against a trustee' sale buyer that terminates tenancy based on occupying, but then doesn't. The consequences might be embedded in the TIFA or Dodd Frank, but I haven't seen it or heard any case law about. Munis like Berkeley and LA have rent control laws that include tenancy termination when the landlord or their family intends to use a unit as their primary residence. Those laws spell out tons of detail about what primary residence means, what family member means and the number of years the displaced tenant has recourse if the landlord fails to use the property as a primary residence. I've not seen anything like that in the TIFA.
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
13y
Originally posted by Tim Breems:
I would contact the tenant first and try to work something out before starting the eviction process.
I don't think anybody is suggesting starting the eviction process. The 90 notice isn't the eviction process. It's a notice to the tenant that terminates the tenancy and gives them a date (90 days out). If the tenant doesn't leave after 90 days, that's when the eviction process starts. Even if you go for cash for keys or work something out with the tenant before, you serve the 90 day notice asap so you're covered if you need to evict.
Real Estate Investor · Palos Heights, IL · Member since 2011 · 44 posts · 28 votes
13y
K. Marie Poe
Yes, I agree that serving the 90 day notice asap is a prudent measure.
I was just wondering if J Chen has had any contact with the tenant?
I would first go knock on the door and talk to the tenant about their situation before paying for legal counsel. There is always a chance that they will leave voluntarily.
Chicago, IL · Member since 2012 · 6 posts · 0 votes
13y
K. Marie Poe, Tim Breems
I had some initial conversation with the tenant just to figure out what his intention is but have not offered anything yet.
His rent is about $400 lower than fair market value. I am not sure if this is enough to show this is not a "bona fide" contract. Anyway, we will talk to him again to see if he is willing to move sooner if we offer some help.
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
13y
Originally posted by Jon Holdman:
What's fair market rent? If its $600, paying $200 is clearly low. If its $2000, then maybe, maybe not.
If the stuff Marie says follows pattern, this provision of this law has been gutted, too.
Good luck. I think you're a ways from moving in. Hopefully that's not a big surprise.
I have no idea how the owner after foreclosure is supposed to proceed when the tenant's lease has them paying substantially below fair market rents. Does the lease become invalid? Or can the tenants pay FMR to continue tenancy. The only case law I've read that relate were CA cases where the rent was just of one of many counts in the complaints. In those cases (all two of them) the judges found for the plaintiffs (tenants) on the rent issue. Their opinion was that fair market is broad and could be lower or higher based on many factors: condition, long term versus short term, knowledge of the pending foreclosure going into the lease, etc. Not sure if the $400 makes a difference here, as I think a percentage is what would be judged as significant or not.