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Tenant's Rights when
Leased Property is Foreclosed
The statutory protection for residential tenants of leased
property that has been foreclosed upon is the Protecting
Tenant at Foreclosure Act, which became immediately effective
and operative when signed into law on May 20, 2009.
Prior to passage of the Act, Florida residential tenants did enjoy
some protections but such protections were often of limited
benefit for the tenant. It was true that a tenant who was not
joined in the foreclosure proceeding did not have their rights
negated by the foreclosure, but the residential tenant could
easily be joined in the foreclosure proceedings by being
generically identified in the paperwork as “Unidentified Tenant”
so the notice of the impending foreclosure suit was often not
effective for the residential tenants. Also residential tenants did
not always appreciate the fact that the foreclosure could negate
their rights to continue to reside at the property even if the
tenant continued to abide by the terms of the lease and pay
their rent. Therefore residential tenants were often unaware
that as soon as the foreclosure proceeding was concluded,
their rights to the property would be terminated and they would
have to move.
This lack of rights and protection for the residential tenant of
foreclosed property was somewhat addressed by the passage
of the Act. The Act curtails the new owner’s rights to remove
the tenant from the residential property, requires certain notices
be provided to the residential tenant, and, under certain
circumstances, provides the tenant with the right to continue to
occupy the residential property for a period of time after the
foreclosure. Therefore with this legislation, residential leases
now survive the foreclosure process, to varying degrees.
Examining the Act itself reveals the circumstances to which the
Act applies, the types of notices required by the new owner of
the property once the lender has foreclosed upon the
residential property, and the protections that are afforded the
The Act applies to any foreclosure of a mortgage or security
interest on residential property or the foreclosure of a federally-
related mortgage. A “federally-related mortgage” is defined as
a mortgage on real property that is intended to be utilized as
one to four residential units and the loan that is secured by the
mortgage was made by a lender whose deposits are insured by
the Federal Government, was made in whole or in part by an
agency of the Federal Government (such as the Housing and
Urban Development Agency, FHA, or VA), is intended to be sold
by the originating lender to an agency of the Federal
Government (such as Fannie Mae or Freddie Mac), or is made
by a lender who makes or invests in residential real estate loans
aggregating more than $1,000,000.00 per year.
Therefore generally loans secured by mortgages on property
comprised of one to four separate residential units that are
made by federally regulated banks or other financing
companies who routinely finance the acquisition of residential
property will generally be governed by the Act.
And when a mortgage that is governed by the Act is foreclosed,
the new owner takes the property subject to certain rights of
bona fide tenants residing at the property. The key element
that dictates what rights the tenant enjoys is when they entered
into their lease. If the tenant entered into their lease before the
notice of foreclosure was served on them and the lease term
has more than 90 days remaining then the tenant may continue
to occupy the property for the remaining term of the lease, if the
new owner does not intend to live at the property. If the new
owner does intend to live at the property and occupy it as their
primary residence, then the tenant must be allowed to reside at
the property for at least 90 days after a “Notice to Vacate” has
been delivered to them by the new owner.
If the tenant entered into their lease after the notice of
foreclosure was filed, if the tenant does not have a lease and is
residing at the property on a month-to-month basis, if the lease
is terminable at the will of the owner of the property, or if the
lease term has less than 90 days remaining then the tenant
must be allowed to reside at the property for 90 days after a
“Notice to Vacate” has been delivered to them by the new owner.
The Act however only applies to “bona fide” tenants. A bona
fide tenant is defined as a tenant actually residing at the
property who is not the child, spouse, or parent of the mortgage
holder who is foreclosing on the property; the lease was the
result of true arms-length negotiations; and the rental amount
required by the lease is not substantially below fair market rent
for similar properties.
Also, all “Notices to Vacate” required by the Act must be
delivered by the new owner to the tenant after the certificate of
title has been issued by the Court pursuant to the foreclosure
action and title to the property has been transferred to the new
owner. Any “Notice to Vacate” sent before the certificate of title
has been issued is not valid.
However, while providing significant protections to the tenant,
the Act does not protect the tenant against all possible harm
that can befall them as a result of the property they are renting
being foreclosed upon. The Act includes a sunset provision so
after December 31, 2012, the requirements and protections of
the Act are no longer effective. Any residential tenant who has
prepaid rent to the original landlord will frequently have difficulty
recovering that rent and often this prepaid rent is not paid to
the new owner of the property by the original owner therefore
the tenant may not receive credit for such prepaid rent.
Security deposits are also frequently not paid to the new owner
by the original owner therefore the tenant will often not receive
credit for security deposits paid to the original owner. Further,
the Act imposes the requirements on the immediate successor
in title following the foreclosure, if the property was, in quick
succession, transferred or conveyed to a third party then such
third party may not be subject to the requirements of the Act.
Also, the Act does not impose any requirements on the original
owner who is being foreclosed upon therefore the original
owner could be compelled by the lender who is foreclosing on
the property to terminate any leases that can be terminated
before the foreclosure is complete, such as any month-to-month
leases which are in place for the property. Finally, residential
tenants must be aware that the Act does not absolve them of
the duty to perform in accordance with the terms of the lease,
they must still abide by the terms of the lease and pay their rent
because if they do not then the new owner can still evict them.
Return to Analysis of
Tenant's Rights in Foreclosure
Law Office of
Craig W. Little, P.A.