The Gallatin News
Little-Known Foreclosure Law Helps Renters
"We are only tenants, and shortly the great Landlord will give us notice that our lease has expired.” – Joseph Jefferson, great American actor and comedian (1829-1905)
According to the 2010 U.S. Census data, 30.3 percent of Tennesseans live in rented housing units. With 2,812,133 housing units in Tennessee in 2010, this means there are now about 852,076 rental homes and apartment units in our state.
Foreclosures have been increasing. Unfortunately, some landlords have defaulted and have not paid their mortgage payments on the housing units they rent. Tennessee families and individuals whose rented homes were foreclosed have lost their homes with little notice.
Renters now have some legal protection when their landlords default on mortgages. A federal law that took effect in 2009 now helps protect renters during foreclosure in all 50 states.
Q. How does this new federal law protect renters?
This law protects tenants when their rented homes fall into foreclosure due to landlords’ failure to pay their mortgages. It is called the “Helping Families Save Their Homes Act.” The law has recently been extended and is now in effect through December 31, 2014.
Under this law, tenants have the right to stay in their rented homes and units and pay rent for 90 days after the date of transfer of title due to foreclosure, or through the remaining term of their written lease, which could be longer than 90 days. Rent is paid to the “successor in interest” who takes legal title to the rented unit through the foreclosure process.
Q. Are there balancing provisions to protect lenders and new property owners?
Yes. The law only applies to “bona fide” leases and tenants, and is subject to three conditions:
(1) The rent amount paid must be at a fair market value. (The condition also protects tenants whose rent is subsidized by a federal, state, or local subsidy.)
(2) The lease must be an “arm’s length” transaction (meaning that two related parties deal with one another as though they are unrelated).
(3) The mortgagor who defaulted or the child, spouse, or parent of the mortgagor who defaulted cannot be the “tenant.”
If there is no written lease, the tenant must move out after a 90-day notice from the successor in interest. A tenant must also move after 90 days’ notice if the new owner will occupy the unit as his or her primary residence.
Q. What protection does Tennessee law have for renters whose housing is foreclosed due to the landlord’s default?
Answer: None. How do I know? Because it happened to my family when we moved home to Tennessee in 2002. I had signed a 6-month lease with a local realty firm which represented the landlord.
One month later we got a notice that our rented home was in foreclosure and we had to move out in 30 days. It turns out the landlord used my pre-paid rent money for something other than the mortgage.
I recovered my pre-paid rent and deposit from the Realtor® that represented the landlord, but most tenants are out of luck.
Q. Do other states have laws that protect renters during foreclosure?
Some do. In those states, a lender that forecloses, or the new owner who buys the property at a foreclosure sale, must honor the existing lease(s) and allow the tenants to continue to stay and pay rent through the end of their lease(s).
Note: Tennessee is one of several states with no state law protection for renters during landlords’ foreclosures. Our legislature has a chance to pass balanced renter protection laws before the federal law ends in 2014.
James B. (Jim) Hawkins is a general practice and public interest law attorney based in Gallatin. This column represents legal information, and is not intended to take the place of legal advice. All cases are different and need individual attention. Consult with a private attorney of your choice to review the facts and law specific to your case. To suggest future column topics, call 452-9200.