DSNews The homepage of the servicing industry
The process of eviction has become more heavily regulated in recent years right along with the rest of the housing industry, mainly by the Protecting Tenants at Foreclosure Act (PTFA) of 2009.
Two experts discussed how the process of eviction has changed in the "PTFA and Beyond: Handling Evictions" on September 15 at the Property Management Lab of the Five Star Conference.
Tenants who are facing foreclosure and are protected under PTFA have more options than they did before. PTFA, like much of today's housing regulation, was created in response to the mortgage crisis of 2008. It was set to expire at the end of 2012 but the expiration date was extended to December 31, 2014 due to the passage of the Dodd-Frank Reform Act in 2010.
The audience first heard from Amy Czekala, managing attorney for evictions at Morris Hardwick & Schneider who opened the Atlanta-based firm's office in Virginia last year. Czekala said tenants have become more aware of their increased rights and sometimes choose to fight the process rather than go quietly, which will invariably delay the process.
"Any noise brought up by the tenant is going to stop the process because of potential litigation," she said. "It's easier to work it out than to move forward with litigation."
Therefore, it is in the best interest of the foreclosing lender to attempt to work out a deal, such as a "cash for keys" agreement, to make the process as smooth and hassle-free as possible. A cash for keys deal is just like it sounds – the lender offers the tenant a cash sum in exchange for the keys for the house, and the tenant agrees to leave the house in good condition.
"In Washington, D.C., tenants know they have a lot of power," Czekala said. "They'll try to work out a higher cash for keys deal. If you've got a tenant that will go away for $25,000, that is absolutely a great investment."
Elizabeth Taylor-Counts, the manager of Freddie Mac's eviction unit, told the audience that a tenant facing eviction will have three options if that tenant is protected under PTFA – but first a determination must be made as to whether the lease is "bona fide", or in other words, if the mortgagor under contract is not the tenant of the house; if the lease was the result of an arm's length transaction (the two parties involved in the lease do not have a relationship with one another); or if the rent the tenant is paying is not substantially less than the house's fair market value. Should the lease be determined to be bona fide, the tenant is entitled to protection under PTFA.
"Attorneys will review the lease and decide if the lease is bona fide, and if it is, the tenant will be sent a 'you have options' letter," Taylor-Counts said. "The first option is to stay in the home if they are bona fide tenants. The second option is a cash for keys deal. The third option is for Freddie Mac to lease the property back to the tenant on a month-to-month basis if they qualify."
The tenant must be given 90 days' notice to leave the property (or choose one of those options) before Freddie Mac (or any lender) can move forward with the eviction process and litigation if necessary. But that is not the desirable way to go, Counts-Taylor said.
"Freddie Mac is looking for the tenant to make a graceful exit," she said. "Ultimately we want less litigation and for people to relocate."
