Tenants in Foreclosure: Utilizing State and Federal Protections for Tenants Being Evicted from Foreclosed Properties

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1 Tenants in Foreclosure: Utilizing State and Federal Protections for Tenants Being Evicted from Foreclosed Properties Jacob Wicks Staff Attorney Housing Justice Project Jacob Wicks is a Staff Attorney at the King County Bar Association s Housing Justice Project. Jacob grew up in the Seattle area and attended Willamette University in Oregon, where he studied Art. Jacob then went to the University of Iowa College of Law, where he graduated with distinction. While in law school Jacob worked at the University of Iowa College of Law In-house Law Clinic and spent one summer working for Legal Aid Services of Oregon Lincoln County office. Jacob returned to the Seattle area after graduating, where in addition to his public interest work Jacob has engaged in general practice work for attorneys and other clients.

2 Protecting Tenants at Foreclosure Utilizing the State and Federal Protecting Tenants at Foreclosure Acts in Unlawful Detainer Actions 1 Jacob Wicks Housing Justice Project Staff Attorney 2 Jacob Wicks Jacob Wicks is a Staff Attorney at the King County Bar Association s Housing Justice Project. Jacob grew up in the Seattle area and attended Willamette University in Oregon, where he studied Art. Jacob then went to the University of Iowa College of Law, where he graduated with distinction. While in law school Jacob worked at the University of Iowa College of Law In-house Law Clinic and spent one summer working for Legal Aid Services of Oregon, Lincoln County office. Jacob returned to the Seattle area after graduating, where in addition to his public interest work Jacob has engaged in general practice work for attorneys and other clients. 1

3 3 Background Federal Protecting Tenants at Foreclosure Act State Protections Case Assessment Hypothetical situations throughout Questions 4 Goal of representing tenants in foreclosed properties Help tenant transition from unstable housing situation to new housing Avoid filed unlawful detainer if possible Cash for Keys 2

4 5 Hypothetical 1 Over the past year, your client has had multiple foreclosure notices posted on her door listing different trustee sale dates. She often sees people driving slowly by the house and looking in. Occasionally, these passers by get out of their car and start looking around the property. What should she do? 6 Answer: Be aware that property is likely to be sold. Client should plan on moving at some point. Check and see if the property has sold, and if so, find out who currently owns it. Client is not required to allow anyone but the owner or agents of the owner access to the property. Keep paying rent, but only to the owner. 3

5 7 Foreclosure in Washington Can be judicial proceeding Usually Trustee Sale instead 8 Old Law: Tenants got 20 days Under the old law the purchaser was entitled to possession of the property 20 days after the sale RCW

6 9 State Protections Tenants get minimum 60 days after sale RCW (1) A tenant or subtenant in possession of a residential real property at the time the property is sold in foreclosure must be given sixty days' written notice to vacate before the tenant or subtenant may be removed from the property as prescribed in chapter RCW. Notwithstanding the notice requirement in this subsection, a tenant may be evicted for waste or nuisance in an unlawful detainer action under chapter RCW. 10 Federal Protections Tenants get 90 days or remainder of lease Pub. L. No , tit. VII, (2009). 12 U.S.C Sec 702(a) immediate successor in interest in such property pursuant to the foreclosure shall assume such interest subject to - "(1) the provision, by such successor in interest of a notice to vacate to any bona fide tenant at least 90 days before the effective date of such notice; and "(2) the rights of any bona fide tenant 5

7 11 Hypothetical 2 A trustee sale occurred last Friday. On Monday, your client was approached by a real estate agent asking how soon they could move. How should you advise your client? 12 Answer: First ask the client what their goal and financial situation is. Advise them that they have at least 60 days if the state protections apply, and 90 days if the Federal protections apply. When an owner does not want a tenant they will get the tenant out eventually. After the notice period tenant can expect eviction. Try to get cash for keys. When a real estate agent says how soon can you move? the tenant should ask how soon can you cut me a check? Work with the client to come up with a number that will reasonably cover their expenses. First/last month s rent, deposit, moving costs. Present the new owner with a complete offer if possible. Ensure the client is being realistic regarding timelines. 6

8 13 Exceptions Not every tenant covered by the State law Only in Residential Real Property Prior Borrower/Grantor not covered RCW (3) Not every tenant covered by the Federal law Only Bona Fide tenants 12 USC 5220 Sec 702(b) 14 State Exceptions Only covers tenant or subtenant in possession of residential real property- Not other property Residential real property is defined term under (13) property consisting solely of a single-family residence, a residential condominium unit, or a residential cooperative unit. Note: generally not apartment buildings. 7

9 15 Federal Exceptions Only covers bona fide tenants Prior owner or relatives usually not bona fide Rent must be market rate unless subsidized Section 8 tenants presumptively bona fide 12 U.S.C Sec 702(b) Bona fide if 1: mortgagor or child, spouse, or parent of mortgagor under the contract is not the tenant, AND 2. Lease result of arms-length transaction AND 3. Lease requires receipt of rent not substantially less than fair market rent or unit rent is reduced or subsidized by Fed, State, local subsidy. 16 Without the protections, Old law Tenant must vacate 20 days from sale RCW (1) The purchaser at the trustee's sale shall be entitled to possession of the property on the twentieth day following the sale, as against anyone having an interest junior to the deed of trust The purchaser shall also have a right to the summary proceedings to obtain possession of real property provided in chapter RCW. 8

10 17 Protections activate at Foreclosure Not at normal owner sale or short sale Not if tenant falls into exception Date of foreclosure clarified in the Dodd-Frank Wall Street and Consumer Protection Act Public Law Section 1484 For purposes of this section, the date of a notice of foreclosure shall be deemed to be the date on which complete title to a property is transferred to a successor entity or person as a result of an order of a court or pursuant to provisions in a mortgage, deed of trust, or security deed. 18 Hypothetical 3 21 days after a trustee sale, a renter in a foreclosed property receives a 3-day pay or vacate notice. How do you advise the client? 9

11 19 Answer: Check if notice came from actual owner/agent If tenant wants to stay should pay rent and ideally negotiate a rental agreement Tenant s position depends on whether they are covered by Federal PTFA and/or state protection If not, owner can get them out regardless of rent because 20 days have passed If covered by Federal act, 90 days but must pay rent If covered by State act arguably cannot be evicted for non payment within 60 days 20 Tenants get notice pre-foreclosure: 30 day notice of default, before the 120 days notice of trustee sale Or 30 day pre-foreclosure notice No remedies if tenant does not receive 10

12 21 Possible notices post-foreclosure: If covered, Tenant should get 60 days state 90 days federal May receive normal Unlawful Detainer notice Or other notice from landlord or agent 22 No prescribed form of notice Landlord or Attorney may combine into one vague 90 day notice 11

13 23 Assessing Cases Has the foreclosure happened? What is the client s goal? How long have they been living there? How much do they owe? What notices have they received? 24 Hypothetical 4 It is December 9 th right now, but the records indicate that a trustee sale occurred back in August. The renter in the foreclosed property did not hear anything from the new owner until yesterday when they received a 3-day pay or vacate notice. How do you advise the client? 12

14 25 Answer: Figure out client s goal Examine 3-day. Is it for market rent? For all rent since August, or back rent from prior owner? Ask if they have received any legal paperworknotices, summons and complaint, etc. Ask whether they have been paying rent. What amount, to who, when and do they have proof? If Federal and/or State protections apply, then client still entitled to notice period prior to eviction 26 To find out if and when sold Check the Recorder s website or call 13

15 27 What notices has the tenant received? Who are the notices from? 28 Can your client assert protections? Federal PTFA Exceptions Must be a bona fide tenant State act only covers tenants in possession of residential real property 14

16 29 New owner takes subject to the lease If the protections apply, new owner steps into the shoes of the old owner, has all obligations 30 Purchaser s intent to live in property If the purchaser intends to use the property as their personal residence that limits to 90 days 15

17 Using Plaintiff s Mistakes to Defend the Unlawful Detainer Hopefully cash for keys or new landlord tenant relationship- if not, it s unlawful detainer suit Argue about the notice given You want state and federal protections, plaintiff will possibly argue against both Argue about amount of rent due. Likely no assignation of previous rents to new owner. 60/90 day period applies from when the notice is given, not from sale Hypothetical 5 Your client is three months into a one year lease. They come to you with a confusing notice that references both a 60 day period and a 90 day period. How should you advise your client? 16

18 Answer: Check the King County Recorder s website (or local equivalent) to verify whether a foreclosure or trustee sale occurred If sale occurred and either Federal or State protections apply then new owner subject to lease and tenant may finish remainder of lease If new owner asserts they will use property as their residence, tenant with lease only gets 90 days Combination 60/90 notice may be valid because neither law prescribes form of notice. Argue why it is not- confusing, materially deceptive etc Hypothetical 6 Your client comes to you because the property they rent has already been sold at a trustee sale. It was sold last month. The old owner made them pay rent for the current month to him even though he had no right to do so. The new owner has filed an eviction action alleging non payment of rent. The new owner has issued a 90 day notice that talks about the federal PTFA, but does not mention the 60 day state PTFA. What defenses? What if the property sold 91 days ago? 17

19 35 Answer: The client has a claim against the old owner for unjust enrichment or possibly fraud. They will have to sue the old owner to get that month of rent back. The new owner is not responsible for their erroneous payment of rent. At a hearing you might argue apparent authority or equitable estoppel, but do not expect to prevail. Your client owes rent to the actual owner of the property- not the prior owner. Arguably a 90 day notice does not suffice as the required 60 day notice because it does not make the tenant aware that they may have rights under the Washington statute. Landlord will argue 90 days is more than 60 days and neither statute prescribes form of notice. If 90 days have passed since the was given then your client may be in unlawful detainer Questions? 18

20 37 How Foreclosure Works in WA: Trustee Sale: Mortgages are not commonly used in WA. More frequently, a Deed of Trust Trustee has right to sell property on default Borrower default, notices issue, property sold at Trustee Sale At least 190 days from date of delinquency or default to sale. RCW (8) 38 How Foreclosure Works in WA: 30 day notice of pre-foreclosure options must issue prior to notice of default. RCW day notice of default to owner. RCW (8) 120 days from notice of trustee sale to actual date of sale RCW (1) Borrower can cure default until 11 days before trustee sale Borrow may file motion to restrain sale 19