The Effects of Non-Judicial Foreclosure on Tenant-Occupied Property in California
In this Emerging Issues Analysis, San Francisco attorney Christopher Martz discusses recent developments surrounding the effects of non-judicial foreclosure on tenant occupied property. The focus is on California law, but recent federal legislation, the “Protecting Tenants at Foreclosure Act of 2009,” drastically alters the legal landscape following non-judicial-foreclosure on tenant-occupied property, both in terms of whether a residential lease survives the foreclosure sale and the steps necessary to terminate an extinguished lease or tenancy. This article highlights these important developments and exposes common pitfalls for tenants and property-owners alike. Mr. Martz writes:
Residential Lease Survives Non-Judicial Foreclosure for Remainder of Its Term. The Protecting Tenants at Foreclosure Act of 2009 (PTFA) provides that an unexpired residential lease will survive foreclosure for whatever amount of time remains on the lease [Pub. L. No. 111- 22, § 702(a) (2009)]. Tenants who enter into a fixed-term lease before the notice of foreclosure are now entitled to remain in possession for the remainder of the lease term provided the lease meets the three-pronged test to qualify as bona fide. A lease is bona fide under PTFA if [Pub. L. No. 111- 22, § 702(b) (2009)]:
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The tenant is not the mortgagor or the mortgagor's child, spouse, or parent;
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The lease is the result of an arms-length transaction; and
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The rent due under the lease is not substantially less than market rent, unless the rent is reduced by a subsidy.
The protections of PTFA extend to subsidized tenancies as well. In such cases, the immediate successor in interest following non-judicial foreclosure takes the property subject to both of the following [Pub. L. No. 111- 22, § 703 (2009)]: