Renters Get Relief From Foreclosure

Renters Get Relief From Foreclosure

Source: Bankrate.com

Many of the households affected by the foreclosure crisis are actually renters, and a federal law is designed to keep them from being evicted with little or no notice. A federal law enacted this year offers renters more protection from eviction if their landlord loses the property through foreclosure . A Federal Reserve memorandum states, “The Protecting Tenants at Foreclosure Act ensures that tenants facing eviction from a foreclosed property will have adequate time to find alternative housing”. Technically, the law applies to "any foreclosure on a federally related mortgage loan", the definition of "federally related" encompasses virtually all loans. The new law allows tenants who have a lease to remain in their home until the end of the lease period unless a new owner purchases the home at a foreclosure sale and intends to occupy it as a personal residence. In that case, the renter can be evicted with 90 days notice even if a longer-term lease is in force.

The law became effective May 20 and is scheduled to end Dec. 31, 2012. Only 'bona fide' renters are protected. The law protects only a bona fide lease or tenancy, which is defined as a situation that meets three criteria:

• The renter may not be the former owner of the home, or the former owner's spouse, child or parent.
• The terms of the rental must be at arm's length between the landlord and renter.
• The rent cannot be substantially less than the fair-market rent, unless the rent is subject to a government reduction or subsidy.

The new law doesn't pre-empt any state or local laws. Instead, it specifies that it won't affect "the requirements ... of any state or local law that provides longer time periods or other additional protections for tenants." State laws apply to most landlord-tenant issues that are beyond the scope of federal law. Examples include prepayment of a last month's rent and reimbursement of a security deposit. Neither of those issues is mentioned in the new law.