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Tenants don't have foreclosure-act protections in short sales

Such a sale avoids completion of the foreclosure process. The new owner becomes a renter's new landlord and can decide to continue the tenancy or terminate it.

February 06, 2011|By Martin Eichner

Question: I have rented a house for several years. The current owner told me that he is going through foreclosure. He says that he is about to conclude an agreement to allow a "short sale" of the property, which I understand allows the house to be sold for less than the amount of the mortgage. I thought there were special protections for tenants who are caught up in foreclosures. Are there any special protections for me if there is a short sale?

Answer: There is a federal law, the Protecting Tenants at Foreclosure Act, which gives additional rights to "bona fide" tenants living in a property that changes ownership due to a foreclosure. This law requires a minimum of 90 days' notice to month-to-month tenants after the foreclosure has been completed. Tenants who have a bona fide lease are entitled to remain until the lease expires.

These protections apply only after the foreclosure has been completed. In California, foreclosure is completed when a trustee sale has occurred, resulting in a new legal title to the person or company that purchased the property at the trustee sale auction. The current owner has no standing to control the trustee sale.

A short sale occurs as a result of a voluntary agreement among the current owner, the new owner and the lender, whose permission is required. The purpose of the short sale procedure is to avoid the trustee sale and find a new owner before the old owner's rights are extinguished by the trustee sale.

Unfortunately for you, this means that the additional protections of the foreclosure act will not be available to you because the foreclosure was never completed. The new owner taking title pursuant to the short sale becomes your new landlord and can decide to continue your tenancy or terminate it pursuant to the usual 30-notice period, or a 60-day notice period if you have been a tenant for more than one year.

Eichner is director of Housing Counseling Programs for Project Sentinel, a Sunnyvale, Calif.-based mediation service. To submit a question, go to http://www.housing.org.

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