New Federal Law Impacts Tenants and Foreclosures

by Judge Gerald A. Williams

North Valley Justice of the Peace

Congress recently passed, and the President recently signed, “The Protecting Tenants at Foreclosure Act of 2009.”  12 U.S.C. § 5220.  It essentially allows good tenants at least an additional 90 days to stay in the residence after a foreclosure.  This law applies to any federally-related mortgage or deed of trust (like a VA, FHA or HUD loan).

Most Arizona homeowners technically don’t have a mortgage.  Arizona is a deed of trust jurisdiction and if a homeowner signs one, then the lender can sell the house at a trustee’s sale if the homeowner is behind in his payments, didn’t pay for property insurance or didn’t pay his property taxes.  If a homeowner is in one of these categories, then the lender can sell the home in approximately 90 days.

Under this new law, a buyer of a residence at a trustee’s sale must honor any existing lease that was signed before the notice of trustee’s sale was issued.  If the buyer purchased the house as an investment, and if the tenant has and continues to follow the terms of the lease, then the tenant can continue to live in the residence until the lease expires.

If the buyer is going to move in and will occupy the home as his primary residence, then the tenant will have to move.  However, the buyer must give the tenant a notice to vacate 90 days before an eviction action could be filed.

It is very important for everyone to understand that this law does not protect tenants who are in default.  If you are a tenant and you hear that your residence may be going into foreclosure, perhaps the worst thing you can do is stop paying rent.  Doing so will likely trigger an eviction action for nonpayment of rent, which will move a lot faster than any foreclosure proceeding.

Occasionally, tenants going through this process face a practical problem of more than one person claiming to be their landlord.  Tenants have a duty to pay rent; but obviously not twice for the same month to two different people.  If an eviction action has been filed, then a tenant can pay their rent to the court as a “litigant bond.”  At trial, the judge will determine who is the real landlord and the tenant will avoid having a judgment entered against him.

Judge Williams is the presiding justice of the peace for the Northwest Regional Court Center.  His column appears monthly in The Foothills Focus.

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