iStock_000015122897XSmall.jpgOn May 20, 2009, President Obama signed into law the Protecting Tenants at Foreclosure Act of 2009 (the “Act”). The Act was created during the height of the foreclosure crisis as a temporary measure to protect tenants who entered into a lease without realizing a property was in foreclosure. The Act provided that lenders and third-party purchasers who took title to a property at a foreclosure sale must provide a tenant with a minimum of 90 days’ notice, prior to seeking a writ of possession and evicting the tenant.

Sunset Provision of the Act

The Act was scheduled to expire on December 31, 2012, but the Dodd-Frank Wall Street Reform and Consumer Protection Act extended the sunset provision to December 31, 2014. There was much speculation within the legal community regarding whether the Act would be extended again. On November 21, 2013, the Senate introduced Bill 1761, titled “Permanently Protecting Tenants at Foreclosure Act of 2013,” which sought to indefinitely extend the protections afforded under the original Act, as well as provide tenants with a private right of action against lenders and third-party purchasers who failed to comply with the Act. However, Senate Bill 1761 never progressed forward, and the Act expired on December 31, 2014.

What Happens After the Sunset?

So what should we expect now? Section 704 of the Act states that upon the sunset date, the Act is repealed and all requirements thereunder shall terminate. Accordingly, lenders and third party purchasers at foreclosure sales are no longer required to permit a tenant to complete the lease term or provide 90 days’ notice prior to seeking a writ of possession. As a result, the process of removing a tenant that once took a few months may now only take a couple of weeks. The expiration of the Act will likely result in decreased carrying costs for lenders, as foreclosed properties can be sold sooner than previously permitted. Further, the expiration of the Act may result in a greater influx of third party purchasers, who no longer have to worry about whether they can take possession shortly after taking title to a property.

Will the Act be Replaced with New Legislation?

The Act provided additional protections beyond those provided in state and local landlord and tenant laws. In response to the Act not being extended, some states have considered passing additional laws to protect tenants who reside in foreclosed properties. Additionally, Congress may reconsider this issue and pass a new tenant protection law in the future.

We will keep you updated with further developments.