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Legal Briefings: renter’s rights when landlord is foreclosed

This article first appeared on St. George News under the Snow Jensen & Reece column “Legal Briefings.”

Matthew Ence is an attorney with the law firm of Snow, Jensen & Reece. The content in this column should not be construed as legal advice or as a substitute for counsel on individual matters, in most scenarios it is premised upon Utah law and may not be relevant to issues arising in other states.

Question:  I am looking at moving into a new rental home, and someone I know had to move out of their rental because the owner, his landlord, was foreclosed by the bank. How do I make sure that doesn’t happen to me?

Answer:  With home foreclosures so widespread in recent years, this problem has become more common for residential tenants.

In 2009, in response to the then-growing housing crisis, the U.S. Congress passed and President Obama signed the “Protecting Tenants at Foreclosure Act.”

The general purpose of the Act was to give residential tenants some protection against eviction if their home was foreclosed. ??The Act draws a distinction between residential lease agreements signed before and after “notice of foreclosure.” A bank or buyer who acquires a property in foreclosure generally must honor the full term of a lease if the lease was signed before “notice of foreclosure,” and as long as the lease is “bona fide.” A lease is “bona fide” if it is not between close family members, was negotiated at arm’s length, and provides for fair market rent.

Generally, a tenant under a lease not meeting the requirements of the Act does not receive the same protection. However, the Act does provide that no residential tenant who is meeting the requirements of their lease can be evicted with less than 90 days notice to vacate.

There are several challenges to interpreting the Act, because no Utah courts have yet reported cases applying the Act. And unless action is taken this year to renew the Protecting Tenants at Foreclosure Act, by its provisions it automatically sunsets on December 31, 2012.

But, the bottom line for a tenant is that the best protections are: first, having a written, bona fide lease; and second, checking local public records to determine if a notice of default has been filed on your rental before you sign the lease.

We also recommend seeking the advice of competent legal counsel to help you with questions about your lease.

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