Investors Beware When Buying Properties That Are Tenant Occupied

Real Estate Agent with Phoenix Property Shoppe 602-380-4886

Investors Beware When Buying Properties That Are Tenant Occupied

In 2009 the US Congress enacted the 'Protecting Tenants at Foreclosure Act. Basically the PTFA Act offered tenants protection of not being evicted in the case of a foreclosure.  There are four qualifications that need to met in order for the tenant to keep possession of the property after a foreclosure by the landlords creditor.  

  1. The defaulting borrower can not be the same person as the tenantInvestor Beware of Buying Homes with Tenants
  2. The lease must be an 'arms length' agreement
  3. The lease must require 'fair market rent'
  4. The lease must have been executed prior to the notice of trustee sale
Until recently the 'notice of trustee sale meant was understood to mean the 90 day notice the lender is required to provide the borrower before proceeding with the foreclosure. Basically that meant the tenant must have signed the lease at least 90 day before the trustee sale.
Here's where it could become a big game changer for investors... according to the The Dodd Frank Act the 90 day notice requirement has been eliminated in Section 1414(1) (B).  The tenant must only show that the lease was entered into anytime before title transfers from the original borrower to a 'a successor entity or person' at the trustee sale.

So what does this mean for Investors buying property?  The defaulting borrower could enter into a lease with a new tenant the morning of the trustee sale thus requiring the new owner to honor the lease following the foreclosure. This means the new owner could be stuck with with renting the property for the remainder of the lease term. 


Investors Beware When Buying Properties That Are Tenant Occupied



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Anna 'Banana' Kruchten
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Re-Bloggged 4 times:

Re-Blogged By Re-Blogged At
  1. Cathy Bureau 04/26/2012 08:30 PM
  2. Wallace S. Gibson, CPM 04/27/2012 03:15 AM
  3. Pacita Dimacali 04/28/2012 10:14 AM
  4. Gene Riemenschneider 04/29/2012 09:51 PM
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investors beware when buying properties that are tenant occupied

Comments 20 New Comment

Karen Fiddler, Broker/Realtor
HOM Sotheby's Intl Realty, 949-510-2395

Another example of Washington meddling and making things worse in the name of "helping"

April 27, 2012 07:31 AM
Michael Jacobs
Pasadena Real Estate Representation 818.516.4393
Coldwell Banker Residential Brokerage

Anna -- this certainly blurs the concept of "protecting"  innocent parties.   

April 27, 2012 11:47 AM
Ron Marshall
Birdhouse Builder Extraordinaire
Marshall Enterprises

That is a scary scenario, Anna.  And, one that dissatisified owners might resort to unfortuately.

April 27, 2012 01:36 PM
Lou Ludwig
Ludwig & Associates


Your advice is right on point it can develop into a big time problem.

Good luck and success.

Lou Ludwig

April 27, 2012 07:27 PM
Pacita Dimacali
Alameda/Contra Costa Counties CA
Alain Pinel


As buyer's agent, we can insist as a condition of purchase, that the property is delivered vacant, and that the seller provide proof that notice to vacate at a certain date has been properly delivered to the tenants. If sellers refuse, then it's up to the buyer to decide whether to proceed with the purchase or find something else.

This is good information to share. Thanks!

April 28, 2012 10:12 AM

Anna Banana Kruchten

Phoenix Real Estate Agent, CRB, CRS 602-380-4886
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