New federal1 and Washington state2 laws impacting eviction and unlawful detainer procedures for tenants residing in foreclosed residential properties took effect on May 20, 2009 and July 26, 2009, respectively. The federal law only provides a minimum set of protections for tenants, therefore, Washington state law still applies to the extent it provides greater protection for tenants. The level of protection under the two laws depends entirely on the classification and legal status of the tenant.
Classification #1. Under existing Washington state law, the default rule is that the purchaser of foreclosed property is entitled to possession of the property twenty (20) days following the foreclosure sale if the occupant is the prior owner, borrower, grantor, or an occupant not defined as a residential tenant under Washington law. The purchaser is required to provide a written notice to the occupant that the new owner is entitled to possession twenty (20) days following the foreclosure sale.
Classification #2. Under the new federal law, a residential tenant or subtenant under a bona fide lease3 is permitted to continue residing on the property for the remainder of the lease or at least ninety (90) days from the date the tenant is given notice to vacate, whichever is longer. In either case, the new owner can only terminate the tenancy and proceed with an eviction if the owner gives the tenant ninety (90) days notice to vacate. If the new owner intends to reside on the property as his or her primary residence, the new owner is not required to honor the remainder of the lease and may lawfully end the lease after giving the tenant ninety (90) days notice to vacate. In the new owner does not intend to use the property as a his or her primary residence, the tenant is entitled to enforce the remainder of the lease, or at the minimum, reside on the property for an additional ninety (90) days. However, a condition to the federal protections is that the tenant must continue to perform its obligations owed pursuant to the lease such as continuing to pay rent.
Classification #3. The third set of protections are for residential tenants that are not considered bona-fide tenants or subtenants, or are tenants that lose the federal protections by failing to perform under the lease (for example, by failing to pay rent after the foreclosure sale). Under the new Washington law, these tenants or subtenants are entitled to possess the property for sixty (60) days following a written notice to vacate before the new owner may commence an eviction proceeding. The new owner, however, may evict the tenant earlier if the tenant commits waste or nuisance on the property. The right to remain on the property for sixty (60) days following the notice to vacate is not conditioned on the tenant’s performance of the lease. Thus, the new Washington law allows residential tenants to remain on the property for sixty (60) days rent free.
What These New Protections Mean for Purchasers of Foreclosed Property. A purchaser of residential property should provide a written notice to the occupant of the property as soon as reasonably possible following the foreclosure sale. To ensure compliance with both laws, the notice to occupant should inform the occupant of the different classifications and each classification’s corresponding protections. In addition the notice should request that the occupant contact the new owner or the new owners’ representative and provide a copy of their lease and rent receipts. An occupant’s failure to do so, however, will not act as a waiver of his or her rights under the new federal and Washington state laws. Thus, the burden is on the new owner to determine the legal status of the occupant and comply with the law.
The foregoing is a brief overview of the new federal and Washington state protections for tenants in foreclosure. For more detailed information or to determine your rights and obligations following a foreclosure sale, please contact Evan W. Marques of Eisenhower's Real Estate and Land-Use Group.
1 Protecting Tenants in Foreclosure Act, Pub. L. No. 111-22, §§ 701-704 (2009)
2 Engrossed Senate Bill 5810, Chapter 292, Laws 2009 (2009).
3 A lease is a bona fide lease only if (a) the mortgagor or the child, spouse, or parent of the mortgagor under the contract is not the tenant; (b) the lease or tenancy was the result of an arms-length transaction; and (c) 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.
