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Dodd-Frank Reform and Tenant Protections in Foreclosure

On Thursday, President Trump signed Senate Bill 2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act, into law. The bill, designed evolve and streamline regulations put in place by the 2010 Dodd-Frank Act, was passed by the House of Representatives earlier this week. The reform bill has many implications for the industry, most of which have been dissected at length over the past few months. One that has flown under the radar, however, is the resurrection of regulations related to the Protecting Tenants at Foreclosure Act (PTFA).

Originally introduced in 2009, the PTFA “contained protections intended to ensure that tenants facing eviction from a foreclosed property would have adequate time to find alternative housing.” The PTFA expired on December 31, 2014. In the years since, some states have implemented their own versions of the law to continue those protections for tenants. However, the Economic Growth, Regulatory Relief, and Consumer Protection Act resurrects the PTFA, something that will have implications for many servicers and financial services law firms.

On Thursday, Legal League 100 member firm Reimer Law Co. sent out a news alert calling attention to the return of the PTFA provisions.

“Title III, Section 304 of the new law repeals the sunset provisions of the Protecting Tenants at Foreclosure Act,” reads the statement. “This repeal restores the notification requirements and other protections related to the eviction of renters in foreclosure properties. The Act provides that the law and any regulations promulgated pursuant to the PTFA that were in effect on December 30, 2014, are restored and revived 30 days after the enactment of the Act.”

“In a nutshell, the resurrection of the Protecting Tenants at Foreclosure Act will give certain tenants in foreclosed properties significant additional rights beyond those they may have been provided by state laws,” Richard M. Nielson, Managing Shareholder, Reimer Law Co. told DS News.

Nielson cited Kentucky, one of the states in which Reimer Law operates, as an example. Unlike some other states, Kentucky has not introduced their own version of the PTFA in the intervening years since it expired at the Federal level. As such, Nielson explained that the return of the PTFA could significantly increase the amount of time it takes to complete a post-foreclosure eviction. If that range was between 10-30 days before, for example, the reintroduced law could now require as much as 90 days’ notice to “bona fide” tenants before they can be evicted.

“Moreover, if there was a bona fide lease was created prior to the creation of foreclosure, it’s likely the mortgage servicer will have to abide by the terms of that lease, for whatever time is remaining on the lease,” Nielson continued. “It substantially increases the burden on mortgage servicers to comply with all the rules.”

There are also questions surrounding exactly what constitutes the legal definition of “bona fide,” Nielson explained.

“From a practical standpoint, the issue of ‘what is bona fide’ has always been very nebulous,” Nielson said. “As a result, there’s a lot of room for fraud in this area.”

Nielson added that If servicers cannot prove tenants are not “bona fide,” mortgage servicers could wind up with tenants who are locked into substantially lower rents or a substantially longer period of time left on their lease before evictions could be undertaken.

To read the full text of S. 2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act, click here.

About Author: David Wharton

David Wharton, Editor-in-Chief at the Five Star Institute, is a graduate of the University of Texas at Arlington, where he received his B.A. in English and minored in Journalism. Wharton has nearly 20 years' experience in journalism and previously worked at Thomson Reuters, a multinational mass media and information firm, as Associate Content Editor, focusing on producing media content related to tax and accounting principles and government rules and regulations for accounting professionals. Wharton has an extensive and diversified portfolio of freelance material, with published contributions in both online and print media publications. He can be reached at [email protected].

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