Until recently, a tenancy was treated like any other encumbrance that was junior in right to the mortgage. The tenancy was foreclosed out at which point the foreclosing lender obtained an "ejectment" entitling the foreclosing lender to possession of the property. Unless the tenant was able to work out occupancy from the lender, which could mean a shorter term, higher rent or greater security requirements (the lender was not bound by the foreclosed lease), the tenant had to leave. Often, the tenant's first notice of a problem occurred when the tenant was served with foreclosure papers.
Now the federal government, through Public Law 111-22, provides some relief for tenants caught up in the foreclosure of their landlords' property. This law applies in foreclosures of "federally-related" mortgages on a dwelling. A federally-related mortgage is one granted by a federally chartered bank, HUD, FHA, FmHA or is owned by Fannie or Freddy. (This represents the vast majority of mortgages.)
Public Law 111-22 requires a foreclosing lender to honor the remaining term of a bona fide lease entered into before the foreclosure was begun. The lender can terminate the tenancy early only upon 90 (ninety) days notice, and then only if the property has been sold to a purchaser who will occupy the property as his principal residence.
Similar protections are extended to Section 8 tenants.
The protections of the new Law sunset on December 31, 2012. Until then, Realtors® should have their potential tenants ascertain whether a foreclosure has been started on the property (this can be searched on the Connecticut Judicial Department's website, www.jud.state.ct.us/
.). Tenants who have received notice of a foreclosure should consult with their attorney about the protections they may be entitled to under the new Law.
CT law provides both protection and an incentive to vacate to tenants in a foreclosed property. Protection.
Under CGS §47a-20e(b), when a tenant is in possession (where the rental agreement was entered into more than 60 days prior to the foreclosure process began) when the property is foreclosed on, no ejectment action can begin until 60 days after the property's title passes to the mortgagee, lienholder or successor-in-interest, or in the case of a month-to-month tenancy, 30 days after the mortgagee, lienholder or successor-in-interest takes title. Incentive.
Under CGS §47a-20f, any money or valuable consideration offered by a mortgagee, lienholder or successor-in-interest must be (if the tenant paid a security deposit) at least equal to the amount of security interest paid plus the interest that would be due the tenant upon termination of the tenancy, in addition to the security deposit and interest. If there was no security deposit paid by the tenant, the amount due the tenant must be the greater of two months' rent or two thousand dollars.
If your tenant asks you about what protections, if any, he or she has in his/her landlord's foreclosure situation, remind him or her that you are not a lawyer and cannot dispense legal advice as that is outside the scope of your license, but you can suggest that the tenant read the statutes or contact his or her own lawyer.