TovahFlygareAttorney, Southern Minnesota Regional LegalServicesLawrence McDonoughPro Bono Counsel, Dorsey & Whitney LLP
Tenants in Foreclosure
Tenants in Foreclosure: New Laws and Updates
Generic TimelineFederalLawState Law and updates
Generic Timeline***Timeline varies with different foreclosure agreements and processes***
FederalLaw (2009-2014)
In 2009 Congress created protections for tenants whose landlords are in foreclosure. Pub. L. No. 111-22, § 702-04 123 Stat 1632, 1660-62 (May 20, 2009).Whilethe protections expired on December 31, 2014, they still are relevant since Minn. Stat. § 504B.285, Subd. 1a was based on it.
Federal Law (2009-2014)
All qualified tenants (not a child, spouse, or parent of the mortgagor; arms-length transaction; rent that is not substantially less than fair market rent for the property) would receive a 90 day notice from the successor in interest, normally the bank.Theforeclosing bank was not a successor until the redemption period ends, so it is a 90 day notice on top of the redemption period.
Federal Law (2009-2014)
Tenants who started a term lease before the foreclosure notice would get to keep the lease until it expires, unless the successor sold to a third party who would occupy the premises, and gave the 90 day notice.Sincethe successor could not sell until it became an owner at the end of the redemption period, the tenant would get a 90 day notice on top of the redemption period at a minimum, and longer if the lease is longer (i.e. two year lease) and there was no sale to a person who would occupy the premises.
Federal Law (2009-2014)
Foreclosure was not good cause for Section 8 voucher eviction, and did not end the Section 8 lease and contract.Thesuccessor in interest would pick up the Section 8 voucher contract rights and obligations.However, if a new owner was going to occupy the unit, the new owner could give the 90 day notice before becoming the owner, to be effective when becoming an owner.Ifthe new owner did not occupy the property, the owner could not end the lease with a 90 day notice.
StateLaw
1.Post-Foreclosure Notice2. Landlord in Foreclosure NoticetoNew Tenant3.Lender’s Notice of Tenant’s Rights4.Utilities5. SecurityDeposit6. Mandatory Expungement
Post-ForeclosureNotice
The purchaser can not terminate a tenancy which preceded the mortgage.SeeClaflinv. Commercial State Bank of Two Harbors,487 N.W.2d 242 (Minn. 1992) (actual and open possession of property was sufficient to put mortgage lender on inquiry notice of possible rights in property).For tenancies which postdate the mortgage, the Minnesota Legislature enacted several changes to the relative rights of landlord, tenants, and bank from 2008 to 2013.
Post-Foreclosure Notice
The current statute, Minn. Stat. § 504B.285, Subd. 1a, provides:Subd. 1a.Grounds when the person holding over is a tenant in a foreclosed residential property.(a) With respect to residential real property or a dwelling where the person holding the residential real property or dwelling after the expiration of the time for redemption on foreclosure of a mortgage was a tenant during the redemption period under a lease of any duration, and the lease began after the date the mortgage was executed, but prior to the expiration of the time for redemption, the immediate successor in interest must provide at least 90 days' written notice to vacate, given no sooner than the date of the expiration of the time for redemption, and effective no sooner than 90 days after the date of the expiration of the time for redemption, provided that the tenant pays the rent and abides by all terms of the lease.
Post-Foreclosure Notice
(b) With respect to residential real property or a dwelling where the term of a bona fide lease extends more than 90 days beyond the date of the expiration of the time for redemption, the immediate successor in interest must allow the tenant to occupy the premises until the end of the remaining term of the lease, and provide at least 90 days' written notice to vacate, effective no sooner than the date the lease expires, provided that the tenant pays the rent and abides by all terms of the lease, except if the immediate successor in interest or an immediate subsequent bona fide purchaser will occupy the unit as the primary residence, the immediate successor in interest must provide at least 90 days' written notice to vacate, given no sooner than the date of the expiration of the time for redemption, effective no sooner than 90 days after the date of the expiration of the time for redemption, provided that the tenant pays the rent and abides by all terms of the lease.
Post-Foreclosure Notice
For purposes of this section, a "bona fide lease" means:(1) the mortgagor or the child, spouse, or parent of the mortgagor is not the tenant;(2) the lease or tenancy was the result of an arm's-length transaction; and(3) 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 by a federal, state, or local subsidy.
Post-Foreclosure Notice
(c) With respect to residential real property or a dwelling involving a tenancy subject to section 8 of the United States Housing Act of 1937, as amended, where the term of the lease extends more than 90 days beyond the date of the expiration of the time for redemption, the immediate successor in interest must allow the tenant to occupy the premises until the end of the remaining term of the lease and provide at least 90 days' written notice to vacate, effective no sooner than the date the lease expires, provided that the tenant pays the rent and abides by all terms of the lease, except if the immediate successor in interest will occupy the unit as the primary residence, the immediate successor in interest must provide at least 90 days' written notice to vacate, given no sooner than the date of the expiration of the time for redemption, effective no sooner than 90 days after the date of the expiration of the time for redemption, provided that the tenant pays the rent and abides by all terms of the lease.
Post-Foreclosure Notice
There are a couple of scenarios where tenants have defenses against an eviction filed by the successor in ownership of the property following expiration of the foreclosure redemption period:1. The lease began after the date the mortgage was executed and prior to the expiration of the redemption period: The immediate successor in interest must provide at least 90 days’ written notice to vacate, given no sooner than the expiration of the redemption period, and effective no sooner than 90 days from the expiration of the redemption period.
Post-Foreclosure Notice
2. The tenant has a bona fide lease that extends more than 90 days beyond the date the redemption period expires: If the tenant is not a child, spouse, or parent of the mortgagor, the lease resulted from an arms-length transaction, the rent is not substantially less than fair market rent, and there is no new owner who will occupy the property as a primary residence, the tenant can stay until the end of the lease term.
Different Rules for Contract for Deed Cancelation
Prior to August 1, 2008, termination of the tenancy of a tenant renting from a owner following cancellation of a contract for deed or a mortgage foreclosure required one month written notice. Minn. Stat. § 504B.285 (formerly § 566.03), subd. 1.In1992, the statute was amended to clarify when notice to vacate must be provided to a tenant whose tenancy is being terminated due to an contract for deed cancellation or mortgage foreclosure.Thechange specified that the tenant must be given one month's written notice (1) to vacate no sooner than one month after the date the redemption or termination period expires, or (2) to vacate no later than the date when the redemption or termination period expires.Ifthe second option requiring the earlier vacate date is chosen, the notice must state that the sender of the notice will hold the tenant harmless if the tenant breaches the lease by vacating before the end of the redemption period and the mortgage is subsequently redeemed.
Different Rules for Contract for Deed Cancelation
InBroszkov. Principal Mutual Life Ins. Co., 533 N.W.2d 656 (Minn. Ct. App. 1995), the Court held that persons who began occupying foreclosed property beginning late in the redemption period were not tenants of the bank at the end of the redemption period.TheCourt stated that the mortgagor does not have the power to create a tenancy in the redemption period which extends beyond the redemption period, after which any tenant of the mortgagor becomes a trespasser.TheCourt noted that the person did not have a lease, did not pay rent for the last half year, knew foreclosure was taking place and they would have to move, knew the end of the redemption period, was served with process by substitute service, did not attend the hearing, then later contacted the bank's attorney to ask when she had to lease, giving the bank its first notice of her presence on the property, and did not attempt to reopen the unlawful detainer action, but rather sued after execution of the writ of restitution.Thebroad holding limits application of the statute to persons who began renting from the mortgagor before the foreclosure sale, giving no protection to the large number of persons who rent from mortgagors during the redemption period.
Different Rules for Contract for Deed Cancelation
In 2008, the Legislature amended the statute to overruleBroszkoand require a longer notice. Minn. Stat. § 504B.285 now provides:Subd. 1b.Grounds when the person holding over is a tenant in a property subject to a contract for deed.The person entitled to the premises may recover possession by eviction when any person holds over real property after termination of contract to convey the property, provided that if the person holding the real property after the expiration of the time for termination was a tenant during the termination period under a lease of any duration and the lease began after the date the contract for deed was executed but prior to the expiration of the time for termination, and the person has received:
Different Rules for Contract for Deed Cancelation
(1) at least two months' written notice to vacate no sooner than one month after the expiration of the time for termination, provided that the tenant pays the rent and abides by all terms of the lease; or(2) at least two months' written notice to vacate no later than the date of the expiration of the time for termination, which notice shall also state that the sender will hold the tenant harmless for breaching the lease by vacating the premises if the contract is reinstated.
Landlord Notice to Tenant
Minn. Stat. § 504B.151.Landlord must provide written notice to prospective tenants about foreclosure or contract for deed cancellation.Landlord can only make lease for the shorter of: 2 months or the remaining time of redemption or cancellation period.
Landlord Notice to Tenant: Example
Tenant signs a year-long lease and moves into a property only to find there are only 2 months left of the redemption period although Landlord never told tenant about foreclosure.In addition to the $500statutory penaltyfor violations, tenants should argue that a violation of the disclosure requirement renders the lease illegal and void, entitling tenant to a full abatement of rents illegally obtained.Hwang v. _____, No. 19WS-CV-09-1876 (Minn. Dist. Ct. 1stDist. Jan. 26, 2010) (action dismissed and expungement granted where landlord failed to disclose mortgage foreclosure to a prospective tenant),posted athttp://povertylaw.homestead.com/ResidentialUnlawfulDetainer.html
Lender Notice of Tenant’s Rights
Minn. Stat. § 580.042.Foreclosing lender is supposed to give this notice to tenants in a foreclosed property.Foreclosing lender usually only serves a notice of the sheriff’s sale on whoever is at the foreclosed property.
Utilities:Minn. Stat. § 504B.215
WaterGive notice to LandlordCan pay current chargesNot responsible for arrears, late feesNot subject to deposit.
Gas & ElectricGive notice to LandlordService must be restored for at least one billing periodIf less than 5-unit building, tenant can put account in own name
SecurityDeposit:Minn. Stat. § 504B.178, subd. 8
Tenant may use security deposit for rent in the last month of a contract for deed cancellation period or mortgage foreclosure redemption period.
Mandatory Expungement
Minn. Stat. § 484.014, subd. 3.Expungement shall be granted for tenant of foreclosed property if:Redemption period is over and tenant vacated before the eviction action started; ORTenant lived at property during redemption period and did not receive notice to vacate before eviction action.
Questions
Lawrence McDonoughPro Bono CounselDorsey and Whitney, LLPSuite 150050 South Sixth StreetMinneapolis, MN [email protected]://dorsey.com/
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