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Renters in Foreclosed Homes have 90 Days Grace Period

By Tony Severino on Jul 21, 2010 in Foreclosures

Financial reform and consumer protections are the first things that spring to mind when most people think of the Dodd-Frank Wall Street Reform and Consumer Protections Act, but for lenders and other note-holders, start thinking about 90 days grace as well. The bill includes an extension of the Protecting Tenants at Foreclosure Act (PTFA) though the end of 2014[1]. This act affords renters whose landlords have lost their properties due to foreclosure the option and right to remain in the home for 90 days or through the end of their lease. Furthermore, any lease or tenancy created before the actual foreclosure occurred and the title was changed is protected under PTFA.

The National Low Income Housing Coalition (NLIHC) released an analysis in 2009 indicating that nearly 40% of families affected by foreclosure are families who were paying their rent and unaware that the landlord was no longer making mortgage payments. PTFA is a response to that analysis.

Do you think this “grace period” is a good solution to this problem or a hindrance?  Tell me your thoughts below..

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  1. 7 Comment(s)

  2. By Curtis on Jul 21, 2010 | Reply

    I think it’s nice for the tenants since most will not ever know about it until someone is at there door knocking…

    But on the other hand for investors I think it doesn’t help us since now it will take longer to acquire the property, do renovations, and either sell it or rent it out.

  3. By John Frankle on Jul 22, 2010 | Reply

    If a house goes up for auction or foreclosure and the tenants will be allowed a 90 day grace period, will bidders be made aware of their occupancy prior to the purchase?

    Will the tenants be required to pay their normal rent to the new owners?

    I’d be willing to wager that the answers to both of those questions will be “No.”

  4. By Bryan Courtney on Jul 22, 2010 | Reply

    I think they should go one step further. I think if the tenant can prove they have been paying the payment, and the payment is in line with the mortgage debt, then I say continue the foreclosure and then allow tenant to assume original mortgage debt and modify the terms just like you would a HAMP loan. This keeps stabilization in neighborhoods and stops a lot of the false BPO’ing to allow realtors to list REO and sell to colleagues and then they are flipped. Often times the properties are even bought back by the original owner.

  5. By Bryan Courtney on Jul 22, 2010 | Reply

    People may say the renter has to “credit qualify”. Whatever, Lenders will modify a borrower 3 and 4 times with a 480 credit score. I would rather take a chance on someone who has proven both the ability to pay and the willingness to pay. It beats modifying and investors rate to lower their payment and increase their cash flow, only to have them right back in default 4-6 months later. Who suffers then, you got it, the investor that owns the loan and the renter who pays on time.

  6. By Bryan Courtney on Jul 22, 2010 | Reply

    Some of you will say “yeah but renters demolish the home”. I say, then make them responsible for it. Give them the mortgage, the tax benefit, and the repair and upkeep responsibilty.

  7. By CAFA on Jul 22, 2010 | Reply

    John Frankle: Any bidder worth their salt knows that is THEIR OWN responsibility to thoroughly investigate what they are bidding on (assuming you mean buying at the courthouse steps). If one is “bidding” on a listed property (short sale, REO), then laws and rules are in place for proper disclosure.

    Yes, renters will have to remit rent to the new owner FROM THE DATE OF ACQUISITION. However the tricky part is determining if they have a valid lease and what REALLY is their rental amount. The former owner is likely in the wind.. so no help there.

  8. By Curt on Jul 22, 2010 | Reply

    So why couldn’t the defaulting homeowner lease their home for five years at substantially lower than market rent and investors get in the middle if the existing lease has to be honored “thru the end” ???? The foreclosure would go thru and the lease holder could sublease at an increased rate. From the info you’ve provided this sure looks like a possibility, it may be plugged later, but my understanding is leases can be for nearly any length of time, commercial ones are. Any comments?

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