To foreclose on a Federal Housing Administration (FHA)-insured mortgage, the lender must notify residential tenants of the upcoming foreclosure sale of the premises they occupy under the Protecting Tenants at Foreclosure Act (PTFA).
Amended by Mortgagee Letter 2012-06
Effective date: March 15, 2012
A lender foreclosing on a tenant-occupied residential property encumbered by an FHA-insured mortgage must serve a Notice of Pending Acquisition (NOPA) to the tenants within a 60 to 90 day window period prior to the foreclosure sale.
The NOPA includes information advising the tenant that the property they occupy will be sold at a foreclosure sale and ownership temporarily transferred to the lender, until title is transferred to the U.S. Department of Housing and Urban Development (HUD).
Also disclosed is the existence of the right to a 90-day notice to vacate after the foreclosure sale, granted by the Protecting Tenants in Foreclose Act (PTFA), that must be received by the tenant before they need to vacate the property.
In practice, the lender acquiring a property with an FHA-insured mortgage at a foreclosure sale immediately determines if the tenant is eligible to remain in the property upon the lender’s conveyance of the property to HUD.
Following the tenant’s receipt of the NOPA, tenants may file a request with HUD to remain in the property after transfer of title from the lender to HUD, if:
- the tenant’s occupancy is necessary to protect the property from vandalism;
- the average time for HUD to sell property in that residential area exceeds six months;
- when the property is two-to-four units, whether its marketability is improved by continued occupancy;
- eviction expenses make it an impractical option; or
- a tenant’s long-term illness or injury will be worsened by removal from the property.
If the tenant’s situation resembles one of the scenarios described above, the tenant or the property must meet each of the following criteria:
- the house is habitable, as defined by HUD guidelines;
- the tenant has lived in the house a minimum of 90 days prior to the foreclosure sale;
- the tenant agrees to sign a month-to-month rental agreement on a HUD prescribed form at the time the property is conveyed to HUD;
- the tenant has the financial ability to pay the agreed rent;
- the tenant must pay one month’s advance rent upon signing the rental agreement;
- the tenant must allow access to the property during normal business hours to:
- HUD representatives for a physical inspection of the property, with two days’ notice;
- HUD contractors for repairs with two days’ notice; and
- real estate brokers and their clients with two days’ notice; and
- every resident of the property must provide his complete social security number.
If the tenant or the property does not meet these requirements allowing the tenant to remain on the property after HUD takes title, then the lender must determine whether the protections granted by PTFA’s 90-day notice to vacate are applicable.
PTFA is applicable if:
- the tenant occupies the property under a bona fide lease agreement, held with the prior owner, at fair market rent; and
- the lease agreement was entered prior to the foreclosure sale.
PTFA protections do not apply when the foreclosed-out owner or child, spouse, or parent (relatives) is the tenant. If PTFA applies, the lender must promptly issue the tenant a 90-day notice to vacate and, upon the tenant vacating, transfer title to HUD.
The PTFA protections expire December 31, 2014.
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Editor’s Note —Under a tenant-occupied conveyance to HUD, the tenant can later be required to vacate the property upon 30 days’ notice. This notice may be served at the government’s convenience. Due to increased uncertainty resulting from this shortened time requirement under an occupied conveyance to HUD, tenants may find the protections of PTFA preferable, and vacate the property with PTFA’s prolonged 90 days’ notice, before it is conveyed to HUD.
