On May 20, President Obama signed the “Protecting Tenants at Foreclosure Act.” Under the new law, if a federally-related mortgage loan (as defined in 12 U.S.C. 2602) is foreclosed or if the property being foreclosed is a dwelling or residential property, then the purchaser at the foreclosure sale takes the property subject to the pre-existing tenancy of a bona fide tenant.

If you are an investor with tenants, and your rentals are in foreclosure, or if you regularly purchase properties at foreclosure sale, or if you are a lender who forecloses on residential dwellings, there is a new federal law that will have a direct impact on your business.
 
On May 20, President Obama signed the “Protecting Tenants at Foreclosure Act.” Under the new law, if a federally-related mortgage loan (as defined in 12 U.S.C. 2602) is foreclosed or if the property being foreclosed is a dwelling or residential property, then the purchaser at the foreclosure sale takes the property subject to the pre-existing tenancy of a bona fide tenant. A “bona fide tenant” is one who is not related by blood or marriage to the foreclosed borrower and is a tenant under a lease negotiated in an arms-length transaction and the rent is not “substantially less than fair market value.”
 
If the bona fide tenant is there, then the purchaser at the foreclosure sale must provide at least 90 days’ notice to vacate to the tenant, and (if the tenant’s lease pre-dates the notice of lis pendens) the tenant is permitted to remain in the property for the remaining term of the lease or for 90 days, whichever is later. The tenant does not get the balance of the term of the lease (i.e. tenant only gets 90 days) if the purchaser at the foreclosure sale sells the property to someone who intends to live in the property as their primary residence. In that event, the lease terminates immediately upon closing to the new buyer (so long as the tenant has received 90 days’ notice to vacate).
 
This new law “sunsets” and is no longer effective after December 31, 2012.
 
Below is a questionnaire I have devised to interpret the new law:
 

If lease expires in over 90 days:

I hope this helps those who will face this scenario. I would not be surprised if the larger lenders and servicers attempt to attack the new law on constitutional grounds, but the arguments likely would not be heard by the U.S. Supreme Court until after the law sunsets anyway. So, for the time being, we have to gear up and work within its boundaries.