Commercial Property Management: Protecting Tenants from Foreclosure Act
Talk to a Lawyer
Enter a zip code to speak to a Lawyer that serves your area.
The “Protecting Tenants from Foreclosure Act” signed by President Obama on May 20th, 2009 changed commercial property management and gave more protection to renters and tenants of commercial real estate. This was brought about by the mortgage industry crisis that began in 2006 that resulted in millions of foreclosed homes. Before this new Act, tenants were at the mercy of the banks who took over the properties from landlords and commercial real estate owners who fell into foreclosure.
How Tenants Have More Protection from the Protecting Tenants from Foreclosure Act
Before the Act, banks that took over the foreclosed commercial real estate could nullify the previous agreement made between tenants and landlords and force the tenants out onto the street before their leases ran out. This was based on the rule that was common in most states: If the mortgage was recorded before the lease, the foreclosure of that property would wipe out the lease (“first in time, first in right”).
However, with the Act, tenants have at least 90 days (longer if state law mandates a longer time period) from the date of foreclosure to find new housing and move out or can stay for the length of their current lease if the new owner does not plan to move into the property.
The Disadvantage of the Protecting Tenants from Foreclosure Act and the Option to Sue
The one group who actually is at a disadvantage with the new Act is the lease-holding tenant who is given 90 days notice to move out because the new owner wants to move into the property to live in it. Before the Act, the new owner would have had to wait for the current lease to run out before moving into the property, as the former owner would have sold the property to the new owner when the lease was about to expire.
Those tenants who fall into this disadvantaged group can sue their former landlords based on the violation of the “covenant of quiet enjoyment.” This states that the landlord has the legal obligation to deliver the rental for the entire lease period. His/Her falling into foreclosure prevents this, so these tenants would have legitimate legal recourse to sue for moving and apartment-searching costs, application fees, and the difference in costs between the new rent for a comparable rental and the rent under the old lease.
While the former landlord is dealing with financial trouble, awards in these cases don’t amount to that much and do remain on the books for many years, so with persistence, these tenants would be able to eventually receive money from those landlords.
Obtaining Legal Help
The Protecting Tenants from Foreclosure Act has provided tenants with more rights and privileges when it comes to commercial property management. The legal ramifications of the Act can be confusing to a commercial real estate owner who is facing foreclosure. An established and experienced real estate attorney will know how the Act applies to your case and will present the strongest possible case to ensure that all of your rights are represented and that you either are cleared of having to pay your evicted tenants any money or are only obligated to pay for the lowest amount as required by the Act.