The Dodd-Frank Amendments and the Resurrection of the Protecting Tenants at Foreclosure Act

On May 24, 2018, President Trump signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Dodd-Frank Amendments)¹, amending the Dodd-Frank Act. The most widely reported objective of the amendments was to make it easier for banks to lend to creditworthy customers and serve their communities.

Section 304 of the Dodd-Frank Amendments also restored the Protecting Tenants at Foreclosure Act (PTFA)², which was in effect from 2009 until it expired at the end of 2014. The PTFA imposed notification requirements and other protections relating to the post-foreclosure eviction of bona fide tenants in certain properties. Hence, 30 days after the enactment of the Dodd-Frank Amendments, the purchaser of such foreclosed property must again comply with the PTFA's requirements.

What Kind of Property Is Subject to the PTFA?

The PTFA applies to property acquired through foreclosure on a “federally related mortgage loan” (presumably regardless of the type of property) or on any dwelling or residential real property. In other words, the only properties not covered by the PTFA are nonresidential properties on which the foreclose was not on a federally related mortgage loan.

Who Is a Bona Fide Tenant?

The PTFA defines a bona fide tenant as a person in possession of the property with or without a lease, provided:

• The occupant is not the mortgagor or the child, spouse or parent of the mortgagor;
• The lease or tenancy was the result of an arm's-length transaction; and
• 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.

Rights of a Bona Fide Tenant

Notwithstanding any state law to the contrary, under the PTFA, the party acquiring title to the property through a foreclosure sale or as a successor in interest to the purchaser takes the property subject to the rights of a bona fide tenant, if any.

A bona fide tenant without a lease or with a lease terminable at will under state law is entitled to a 90-day notice before the owner may commence eviction proceedings.

When Must the Tenant Have Entered into Possession?

The PTFA applies to bona fide tenants who entered into possession before the date of the “foreclosure notice.” The PTFA, as subsequently amended, clarified the definition of “foreclosure notice” as the date on which complete title to the property was transferred to a successor entity or person as a result of an order of a court or pursuant to provisions in a mortgage, deed of trust or security deed. Hence, the PTFA generally applies to bona fide tenants who entered into possession before the date the foreclosure deed.

What About Leases with a Term not Expiring Until Beyond 90 Days?

A bona fide tenant may not be evicted until the end of the lease term. However, the PTFA provides an exception for purchasers who will occupy the property as a primary residence, although a 90-day notice must still be delivered before commencing an eviction.

Is the Bona Fide Tenant Required to Pay Rent During the 90 Days or the Lease Term?

The purchaser at the foreclosure sale acquires the rights of the prior owner/landlord. Therefore, the purchaser may demand rent according to the rental agreement, and presumably has a right to seek a money judgment against the tenant for the amount of unpaid rent. Of course, if the purchaser demands or collects rent, it is likely that the purchaser will also be saddled with all of the landlord's obligations under the rental agreement and under state law. If rent is demanded and not paid, it would seem that the purchaser will be entitled to commence eviction proceedings under state law, due to nonpayment of rent, even without providing and waiting for the expiration of the 90-day notice period. However, there is no clear answer as to whether courts will interpret the PTFA as prohibiting the commencement of an eviction during the 90-day period, even if rent is demanded and not paid.

Who Has the Burden of Proving Whether the Tenancy Is Bona Fide?

During the PTFA's previous effective time frame of 2009 – 2014, some plaintiffs in eviction proceedings included in their 90-day notices a provision requiring the occupant to provide, within a specified shorter time frame, documentation showing a bona fide tenancy. The notice would also state that if such documentation was not provided by the specified deadline, it would be assumed that the tenancy was not bona fide. However, some courts, such as the Cleveland Municipal Court, rejected that position and prohibited any eviction action from being commenced before the expiration of the 90-day notice period unless the plaintiff proved that the PTFA did not apply.

Clients seeking to commence post-foreclosure eviction actions should consult their attorneys regarding these challenging issues.

For more information, please contact Larry R. Rothenberg, Esq. Mr. Rothenberg is a Shareholder in the firm’s Real Estate Default Group who focuses on residential and commercial real estate, complex foreclosures, evictions, and title insurance issues. With more than 35 years of legal experience, Mr. Rothenberg has been recognized by Martindale-Hubbell as a leader in his field, and has been selected in multiple editions of Ohio Super Lawyers. Mr. Rothenberg currently serves as Chairman of the Cleveland Metropolitan Bar Association’s Foreclosure Procedures Committee.