24 June 2009

[Federal Register: June 24, 2009 (Volume 74, Number 120)]
[Notices]               
[Page 30106-30108]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24jn09-120]                         

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket Number FR-5335-N-01]

 
Protecting Tenants at Foreclosure: Notice of Responsibilities 
Placed on Immediate Successors in Interest Pursuant to Foreclosure of 
Residential Property

AGENCY: Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner, and Office of Assistant Secretary for Public and Indian 
Housing, HUD.

ACTION: Notice.

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SUMMARY: Through this notice, HUD seeks to ensure that individuals or 
entities that participate in HUD programs or with whom HUD interacts 
through its programs are aware of obligations imposed on immediate 
successors of interest in any residential property pursuant to a 
foreclosure to provide tenants residing in such property, including but 
not limited to tenants with Section 8 rental assistance, with at least 
90 days' advance notice of the need to vacate the property, where the 
successor desires to have the tenants vacate. In addition, except for 
purchasers who will occupy the property as the primary residence, 
successors take their interest subject to the remaining term of any 
bona fide lease. These obligations are broadly imposed on immediate 
successors in interest by the Helping Families Save Their Homes Act of 
2009. While HUD is directing this notice to entities and individuals 
that participate in HUD programs or with whom HUD interacts in its HUD 
programs (for example, approved mortgagees, approved nonprofit 
organizations, housing counseling agencies, and public housing 
agencies), these obligations are not limited to FHA-insured or HUD-
assisted housing. The responsibility for meeting the new tenant 
protection requirements applies to all successors in interest of 
residential property, regardless of whether a Federally related 
mortgage is present. The immediate successors in interest of a 
residential property, which is being foreclosed, bear direct 
responsibility for meeting the requirements of the law. These 
protections are self-executing, and became effective May 20, 2009.
    For Further Information: For questions relating to FHA's Insured 
Housing programs, including multifamily housing, contact FHA's Resource 
Center at 1-800-CALL-FHA (1-800-225-5342). For questions relating to 
HUD's Public and Indian Housing programs, including Section 8 vouchers, 
contact Brian Gage, Office of Housing Voucher Management, Room 4210, 
Department of Housing and Urban Development, 451 Seventh Street, SW., 
Washington, DC 20410, telephone (202) 402-4254. For both sets of 
contact, the applicable address is Department of Housing and Urban 
Development, 451 Seventh Street, SW., Washington, DC 20410. Persons 
with hearing or speech impairments may access these numbers via TDD/TTY 
by calling 1-877-TDD-2HUD (1-877-833-2483).

SUPPLEMENTARY INFORMATION:

I. Background

    The Protecting Tenants at Foreclosure Act of 2009 (PTFA), part of 
the Helping Families Save Their Homes Act of 2009 (Pub. L. 111-22, 
approved May 20, 2009), requires that tenants residing in foreclosed 
residential properties be provided notice to vacate at least 90 days in 
advance of the date by which the immediate successor, generally, the 
purchaser, seeks to have the tenants vacate the property. Except where 
the purchaser will occupy the property as the primary residence, the 
term of any bona fide lease also remains in effect.
    With the unprecedented number of foreclosures occurring across the 
country, it became increasingly evident that not only were homeowners 
the victims of the downturn in the economy, but tenants residing in 
residential properties were also victims of the foreclosure crisis. All 
too often, tenants were caught unaware that the residential property in 
which they reside was being foreclosed and were given little notice of 
the need to vacate the property. The objective of these new tenant 
protections is to ensure that tenants receive appropriate notice of 
foreclosure and are not abruptly displaced.
    PFTA Sections 702 and 703 define the scope of PFTA's coverage over 
residential properties. The Section 702 requirements to provide tenants 
with at least 90 days' advance notice to vacate and to preserve the 
term of any bona fide lease apply to foreclosures on all Federally 
related mortgage loans or on any dwelling or residential real property. 
Section 703 makes conforming changes consistent with the Section 702 
requirements to the Section 8 rental voucher assistance provisions of 
the United States Housing Act of 1937 (1937 Act). Both Section 702 and 
Section 703 sunset on December 31, 2012.
    The American Recovery and Reinvestment Act of 2009 (Pub. L. 111-5, 
approved February 17, 2009) (Recovery Act) contains similar tenant 
protections under the heading ``Community Development Fund'' in

[[Page 30107]]

Title XII of Division A, which applies to emergency assistance funding 
provided for the Neighborhood Stabilization Program. The requirement to 
comply with these protections was included in the funding allocation 
documents for the Neighborhood Stabilization Program and is not further 
discussed in this notice.
    This notice provides an overview of these tenant protections 
provisions, addresses their applicability to HUD programs, provides 
basic guidance, and advises where HUD program participants and other 
interested parties may find more detailed guidance directed to their 
programs.

II. The Tenant Protections of Section 702

A. Overview of Section 702

    The coverage of Section 702 is very broad. Section 702 applies, 
commencing after May 20, 2009, the date of enactment, to ``any 
foreclosure'' on (1) a Federally related mortgage loan, or (2) any 
dwelling or residential real property. Section 702 provides that 
``Federally-related mortgage loan'' has the same meaning as that 
provided in section 3 of the Real Estate Settlement Procedures Act 
(RESPA) (12 U.S.C. 2602).
    The definition of Federally-related mortgage loan is very broad in 
RESPA, but Federally related mortgage loans represent only part of 
Section 702's coverage. Section 702 also covers ``any dwelling or 
residential property,'' which extends the requirements to all 
residential property foreclosures, regardless of type or entity 
involved in the foreclosure, and regardless of whether the tenants are 
recipients of any type of housing assistance.
    The tenants to whom the notice must be provided must be bona-fide 
tenants as this term is defined in Section 702(b). Section 702(b) 
defines bona fide lease or tenancy, and under this definition, bona 
fide tenants do not include the mortgagor or the child, spouse or 
parent of the mortgagor. (See 702(b)(1).) With respect to the lease, 
Section 702(b)(2) and (3) provide that a bona fide lease or tenancy 
must have been the result of an arms-length transaction, and the lease 
or tenancy requires the receipt of rent that is not substantially less 
than fair market rent for the property or the unit's rent is reduced or 
subsidized due to a Federal, State, or local subsidy. Section 
702(a)(2)(B) clarifies that the protections provided by this new law 
are minimum protections and do not supersede any greater protections 
(longer advance notice or additional protections) provided by State or 
local law.
    Accordingly, the requirement of Section 702 to provide at least 90 
days notice to tenants applies as follows:
    (1) The advance notice applies to tenants in any foreclosed 
dwelling or residential real property, regardless of the type of loan 
or other security interest on the property.
    (2) An advance notice of 90 days is the minimum period of 
notification. A longer period may be provided, for example, if greater 
protections are provided by State or local law.
    (3) Responsibility for providing the advance notice to tenants 
falls on the immediate successor in interest of the property, which 
will generally be the purchaser.
    (4) The notice must be given to anyone who, as of the date of the 
notice of foreclosure, is a bona fide tenant, whether or not there is a 
lease.
    In addition, Section 702 provides that a tenant under any bona fide 
lease entered into before the notice of foreclosure has the right to 
occupy the premises until the end of the remaining term of the lease. 
The only exception to preserving the remaining term of the lease is for 
a purchaser who will occupy the unit as a primary residence. Even under 
this exception, however, the tenant must still be provided with the 90-
day advance notice to vacate.
    A lease or tenancy must meet the following requirements to be 
``bona fide'' for purposes of Section 702:
    (1) The tenant cannot be the mortgagor or the child, spouse, or 
parent of the mortgagor,
    (2) The lease or tenancy must be the result of an arms-length 
transaction, and
    (3) The rent required under the lease cannot be substantially less 
than fair market rent for the property or the rent is subsidized by a 
Federal, State or local subsidy.

B. FHA-Insured Single Family and Multifamily Housing Programs, and 
Housing Counselors

    The Office of Housing will be providing additional guidance for its 
programs in an effort to ensure that, to the extent foreclosures 
involve FHA-insured or formerly FHA-insured mortgages, the requirements 
of PFTA are observed. Although terminations of tenancies are not 
usually sought immediately after foreclosure on HUD multifamily 
projects, prospective purchasers of multifamily properties in HUD's 
programs should nevertheless be aware that the Section 702 protections 
apply if, in fact, the immediate successor after a foreclosure wishes 
the tenants to vacate. HUD will include in its Invitation to Bid on 
multifamily foreclosures a reminder of the tenant protections that need 
to be followed if the new owner desires tenants to vacate the property.

III. The Tenant Protections of Section 703

A. Overview of Section 703

    Section 703 of PFTA addresses residential housing in which tenants 
who receive section 8 rental voucher assistance reside. The protections 
provided to tenants in Section 703 are not in lieu of the protections 
of Section 702 (the two statutory sections are not exclusive of one 
another) but rather Section 703 makes conforming changes to the United 
States Housing Act of 1937 (1937 Act) to provide PTFA coverage for the 
leases and housing assistance payments contracts applicable for tenants 
receiving section 8 rental voucher assistance.
    Section 8(o)(7) of the 1937 Act (42 U.S.C. 1437f(o)(7)) provides 
that each housing assistance payment (HAP) contract entered into by the 
public housing agency and the owner of a dwelling unit shall provide, 
among other things that, during the term of the lease, the owner shall 
not terminate the tenancy except for serious or repeated violation of 
the terms and conditions of the lease, for violation of applicable 
Federal, State, or local law, or for other good cause, and that an 
incident or incidents of actual or threatened domestic violence, dating 
violence, or stalking shall not be construed as a serious or repeated 
violation of the lease by the victim or threatened victim of that 
violence and shall not be good cause for terminating the tenancy or 
occupancy rights of the victim of such violence.
    To these existing tenant protections, Section 703 provides that the 
HAP contract shall further provide that in the case of an owner who is 
an immediate successor in interest pursuant to foreclosure during the 
term of the lease, vacating the property prior to sale shall not 
constitute other good cause, except that the owner may terminate the 
tenancy effective on the date of transfer of the unit to the owner if 
the owner:
    (1) Will occupy the unit as a primary residence, and
    (2) Has provided the tenant a notice to vacate at least 90 days 
before the effective date of such notice;
    Section 8(o)(7) of the 1937 Act is further amended by Section 703 
to provide that the successor in interest in the case of any 
foreclosure of a property in which a voucher recipient resides assumes 
the interest in the property subject to the lease and HAP contract in 
place before the foreclosure. This

[[Page 30108]]

provision confirms that the section 8 tenant's lease is, in effect, a 
bona fide lease and that the HAP contract survives the foreclosure, 
just as the lease does. Similar to Section 702, the provisions of 
Section 703 shall not affect any State or local law that provides 
additional time frames or protections for tenants.

B. Participants in HUD's Section 8 Voucher Programs

    Immediate successor owners of foreclosed properties in which 
section 8 voucher recipients reside become participants in HUD's 
Section 8(o) tenant-based voucher programs and must comply with 
Sections 702 and 703. The following requirements apply to such 
foreclosed properties as long as the immediate successor in interest 
retains the interest and until the sunset date of the PTFA, December 
31, 2012.
     A demand upon the section 8 voucher recipient to vacate 
the property prior to a sale of the property shall not constitute 
``other good cause'' as meant in HUD's regulations on termination of 
tenancy (24 CFR 982.310), except that:
    [cir] The owner may terminate the tenancy effective on the date of 
the transfer to the owner if the owner:
    [dec222] Will occupy the unit as a primary residence; and
    [dec222] Has provided the tenant with a notice to vacate at least 
90 days before the effective date of such notice.

C. Public Housing Agencies (PHAs)

    With respect to PHAs, a PHA, after foreclosure, provides payments 
under the HAP contract to the new owner for the remaining term of the 
HAP contract, subject to the exception for an owner who will occupy the 
unit as a primary residence. In the case of the owner/occupant, the HAP 
contract would continue for the required notice period. The new owner 
also takes subject to the existing lease, which can only be terminated 
as described in this section.
    The Office of Public and Indian Housing will be providing 
additional guidance as PHAs may need to help ensure that the 
requirements of Section 703 are carried out where applicable.

IV. Additional Guidance

    As noted earlier in this notice, HUD will provide additional 
guidance as may be necessary to help ensure that the requirements of 
Sections 702 and 703.

    Dated: June 18, 2009.
Ronald Y. Spraker,
Acting General Deputy Assistant Secretary for Housing--Federal Housing 
Commissioner.
Paula O. Blunt,
General Deputy Assistant Secretary for Public and Indian Housing.
[FR Doc. E9-14909 Filed 6-23-09; 8:45 am]

BILLING CODE 4210-67-P