Foreclosing on Residential Property under the Protecting Tenants at Foreclosure Act of 2009

Landlord trying to collect rent from Tennant.


In response to the housing collapse in 2009, the United States Congress enacted the Protecting Tenants at Foreclosure Act of 2009 (the “Act”) to protect tenants who live in residential properties that are being foreclosed from abruptly losing their homes. Lenders foreclosing on residential properties must comply with the obligations presented by the Act before filing a forcible detainer action against certain tenants residing in the properties. The Act was originally set to expire on December 31, 2012; however, the Dodd-Frank Wall Street Reform and Consumer Protection Act extended the Act to December 31, 2014. 

Under the Act, generally, the immediate successor-in-interest to a foreclosed residential property must afford a “bona fide tenant” in the property at least 90 days’ notice of the tenant’s obligation to vacate the property. Also, if a “bona fide lease” was entered into before the notice of foreclosure, then the lease is not terminated, and the successor-in-interest takes the property subject to the tenant’s rights under the lease until the end of the remaining term of the lease. A “bona fide lease or tenancy” is one where:


(1)  the tenant is not the mortgagor or the mortgagor’s spouse, parent, or child;

(2)  the lease was entered into in an arm’s-length transaction; and

(3)  the rent required by the lease or tenancy “is not substantially less than fair market rent for the property,, or the unit’s rent is reduced or subsidized due to a federal, State, or local subsidy.


What about leases shorter than 90 days? Is the foreclosing party required to give the tenant 90 days’ of notice to vacate when the residential lease is on a month-to-month basis? Texas courts have not addressed this issue, but, according to an Arizona court of appeals, the answer is “Yes.”


In Bank of New York Mellon v. De Meo, 254 P.3d 1138, 1141 (Ariz. Ct. App. 2011), a residential tenant initially leased the property under a written one-year lease. After that lease expired, the tenant continued to lease the property on a month-to-month basis.


After the property owner defaulted on the note financing the property, the lender foreclosed and acquired the property at the foreclosure sale. The lender then sent the tenant a letter giving notice to vacate the property within five days of the date of the letter. The tenant did not vacate the premises.


In response, the lender brought a forcible detainer suit 97 days after the notice to vacate was given. The tenant raised the Act as a defense, alleging the lender did not serve her with the required 90-day notice. The trial court found that the tenant was entitled to ninety days’ notice from the date of the foreclosure sale, but that because the lender was the rightful owner, there was no theory that precluded the court from granting immediate possession of the property to the lender. The court granted judgment in the lender’s favor. The tenant appealed.


The appellate court examined the language of the Act and held that, before terminating the tenancy, a successor property owner is required provide a bona fide month-to-month tenant with a notice to vacate with an effective date of not less than 90 days after service of the notice upon the tenant. Thus, the trial court erred because the lender’s notice gave an effective date of only five days, not ninety days. The lender’s 97-day delay in filing the forcible detainer did not cure the lender’s procedural misstep.


Following the Arizona court’s interpretation of the Act, a lender must give a bona fide month-to-month tenant 90-days’ notice to vacate the premises. No Texas case has adopted De Meo for this proposition; however, the Dallas Court of Appeals recently cited the Arizona opinion for another proposition in Fontaine v. Deutsche Bank Nat. Trust Co., 372 S.W.3d 257 (Tex. App.—Dallas 2010, pet. filed).


In sum, a lender foreclosing on a residential property should be aware of its obligations under the Protecting Tenants at Foreclosure Act of 2009 before sending a notice to vacate to or seeking a forcible detainer against any tenants currently residing in the property.