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Fed Distributes Information on "Protecting Tenants" Act


The Board of Governors of the Federal Reserve System recently asked its Consumer Affairs officers to distribute information to supervised institutions regarding the "Protecting Tenants at Foreclosure Act of 2009," which became effective May 20, 2009.

This new law protects tenants from immediate eviction by individuals or entities that become owners of residential property through the foreclosure process. It also extends additional protections for tenants with Section 8 vouchers.

The law, which expires Dec. 31, 2012, is self-executing: No federal agency has authority to issue regulations implementing the law or to interpret the law. Given the importance of the protections this law provides to tenants, examiners are instructed, as part of consumer compliance examinations, to evaluate an institution's awareness of the law, its efforts to comply and its responsiveness to addressing implementation deficiencies. Examination procedures to be used in connection with consumer compliance examinations can be found on the Board of Governors web site.

The purpose of the "Protecting Tenants at Foreclosure Act" is to ensure that tenants facing eviction from a foreclosed property have adequate time to find alternative housing.

Under the law, the immediate successor in interest at foreclosure must: (a) provide bona fide tenants with 90 days notice prior to eviction; and (b) allow bona fide tenants with leases to occupy property until the end of the lease term. (Exception: The lease can be terminated on 90 days notice if the unit is sold to a purchaser who will occupy the property.) The law does not affect any state or local law that provides longer time periods or other additional protections for tenants.

A lease or tenancy is bona fide if the tenant is not the mortgagor or the parent, spouse or child of the mortgagor, the lease or tenancy is the result of 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 law does not cover tenants facing eviction in a nonforeclosed property, tenants with a fraudulent lease, tenants who enter in lease agreements after a foreclosure sale or homeowners in foreclosure.