by Lorie Garland
Assistant Vice President
Legal Services

A federal law was recently enacted to protect tenants residing in foreclosed properties from eviction. The Protecting Tenants of Foreclosure Act was enacted on May 20, to protect residential tenants who became victims of their landlord’s foreclosure.

In Ohio, when a property is foreclosed upon, the successful bidder at the sheriff’s sale becomes the owner of the property after the sale is confirmed by the court. Prior to the new federal law, if the property was a rental property, the new owner could terminate the tenant’s right to occupy the property even if the tenant was in full compliance with the terms of their lease. In some instances, the first time the tenants learned their landlord was losing the property through foreclosure was when they were asked to vacate the premises. The Protecting Tenants at Foreclosure Act addresses this problem by requiring that tenants in foreclosed properties be given a 90 day notice prior to eviction and in some cases provides tenants with the ability to stay in the property for the term of their lease.

The federal law requires the new owner (the successful bidder at the sheriff’s sale) to provide a bona fide tenant with a 90 day notice prior to the tenant being evicted. A bona fide tenant who has an existing lease on the property has the right to continue as a tenant for the remainder of the lease term, with two exceptions.

The first exception allows a purchaser at a sheriff’s sale who will reside in the property with the right to terminate the tenant’s occupancy upon 90 day notice. This exception could also be used by a lender or investor who buys a home that is tenant occupied at a sheriff’s sale and then sells the home to a buyer who will live in the property. The tenants could be given the 90 day notice and their right to occupy the home would terminate on the date of the sale to the owner occupied buyer.

The second exception is that the new owner of the property may terminate the tenant’s right to occupy the unit if the tenant does not have a lease (a month to month tenancy) or if the lease is terminable at anytime upon notice. Again, the 90 day notice to the tenant is required.

The rights provided by this law apply to bona fide tenancies or leases. A lease or tenancy is considered bona fide only if, 1) the tenant is not the mortgagor, 2) the lease is the result of an arms-length transaction, and 3) fair market rent is being paid for the unit.

While this new federal law provides certain rights to tenants of foreclosed properties, it does not terminate any obligations of the tenants under the terms of their lease or Ohio’s landlord tenant laws. This includes the tenant’s obligation to continue to pay rent to the new owner of the property during the term of their tenancy. If the tenant stops paying rent he can be evicted.

The new law does not affect the requirements for termination of any federal or state subsidized tenancy or any state or local law that provides longer time periods or other additional protections for tenants. The federal law and its protections expires on December 31, 2012.

Ohio currently does not have a state law specifically addressing tenant rights in a foreclosed property. However, there are bills pending in the Ohio legislature that address these issues. These bills are being reevaluated to determine if there is a need for state regulation in light of the new federal law. Local regulations should also be reviewed to determine if they provide additional protections to tenants in foreclosed properties.