[Federal Register Volume 75, Number 208 (Thursday, October 28, 2010)]
[Notices]
[Pages 66385-66386]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-27309]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket Number FR-5427-N-01]


Protecting Tenants at Foreclosure Act: Guidance on Notification 
Responsibilities Under the Act With Respect to Occupied Conveyance

AGENCY: Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner, HUD.

ACTION: Notice.

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SUMMARY: This notice provides additional guidance on the notice, 
entitled ``Protecting Tenants at Foreclosure: Notice of 
Responsibilities Placed on Immediate Successors in Interest Pursuant to 
Foreclosure of Residential Property,'' published in the Federal 
Register on June 24, 2009. Specifically, today's notice advises on the 
relationship between the Federal Housing Administration's (FHA's) 
current regulations on occupied conveyance and the protections for 
existing tenants under the Protecting Tenants at Foreclosure Act of 
2009 (PTFA). FHA's existing regulations provide that in cases where the 
Secretary will be accepting conveyance of an occupied property because 
of foreclosure of an FHA mortgage, the occupant is entitled to a 60-to-
90 day notice prior to the date the mortgagee expects to acquire title 
to the property with an ability to obtain permission for continued 
occupancy from HUD only upon request and meeting specified conditions. 
The PTFA, on the other hand, provides that after foreclosure on an 
occupied property secured by a federally-related mortgage loan, any 
immediate successor in interest to the foreclosure must provide a 
tenant occupying the property under a bona fide lease with a minimum of 
at least 90 days advance notice before requiring the tenant to vacate 
the property. Additionally, the successor in interest to the 
foreclosure takes subject to any remaining term on the bona fide lease. 
Because there may be some confusion about the interplay between these 
two different notices, HUD issues this interpretive notice.

FOR FURTHER INFORMATION CONTACT: Vance Morris, Director, Office of 
Single Family Asset Management, Office of Housing, Department of 
Housing and Urban Development, 451 7th Street, SW., Room 9172, 
Washington, DC 20410-8000; telephone number 202-708-1672 (this is not a 
toll-free number). Persons with hearing or speech challenges may access 
this number through TTY by calling the toll-free Federal Information 
Relay Service at 800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Background of PTFA

    The Protecting Tenants at Foreclosure Act of 2009, Title VII of the 
Helping Families Save Their Homes Act of 2009 (Pub. L. 111-22, approved 
May 20, 2009) (codified at 12 U.S.C. 5220 note), requires that any 
immediate successor in interest take a foreclosed residential property 
subject to the existing lease

[[Page 66386]]

and provide tenants residing in the property with notice to vacate at 
least 90 days in advance of the date by which the successor, generally, 
the purchaser, seeks to have the tenants vacate the property. Except 
where the purchaser will occupy the property as the primary residence, 
the term of any bona fide lease entered into before the notice of 
foreclosure and extending beyond 90 days also remains in effect. The 
PTFA was enacted during a period when unprecedented numbers of 
foreclosures were occurring across the country. Often, tenants residing 
as leaseholders in residential properties become collateral victims in 
addition to homeowners when foreclosures occur, and are forced to 
vacate their leaseholds, often with minimal notice. The PTFA ensures 
that tenants receive appropriate notice of foreclosure and are not 
abruptly displaced.
    Sections 702 and 703 of PTFA define the scope of PTFA's coverage 
over residential properties. The Section 702 requirements provide 
tenants with at least 90 days' advance notice to vacate and to preserve 
the term of any bona fide lease apply to foreclosures on all Federally 
related mortgage loans or on any dwelling or residential real property. 
Section 703 makes conforming changes consistent with the Section 702 
requirements to the Section 8 rental voucher assistance provisions of 
the United States Housing Act of 1937 (1937 Act). The protections 
provided by PTFA sunset on December 31, 2014.
    Section 1484 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Pub. L. 111-203, approved July 21, 2010) amended PTFA, 
and extended the PTFA protections to December 31, 2014. Section 1484 of 
the Dodd-Frank Wall Street Reform and Consumer Protection Act also 
defined when ``date of notice of foreclosure'' occurs. Section 1484 
provides in relevant part as follows: ``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.
    To fall under the Act, a bona fide lease must be entered into prior 
to the date of the notice of foreclosure, which is defined as ``the 
date on which complete title to a property has been transferred to a 
successor entity or person as a result of an order of a court or 
pursuant to the provisions in a mortgage, deed of trust, or security 
deed.'' A bona fide lease is one in which: (1) The mortgagor or the 
child, spouse, or parent of the mortgagor under the contract is not the 
tenant; (2) the lease or tenancy was the result of an arms-length 
transaction; and (3) the lease or tenancy requires the receipt of rent 
that is not substantially less than fair market rent for the property 
or the unit's rent is reduced or subsidized due to a Federal, State, or 
local subsidy. The requirements of the PTFA apply with respect to 
properties secured by FHA-insured mortgages as well as those in the 
Section 8 program.
    The notice that HUD published on June 24, 2009, addressed the 
general applicability of PTFA protections to HUD programs. This notice 
addresses the interplay of the PTFA notice requirements with the notice 
requirements of FHA's occupied conveyance regulations.

II. FHA's Occupied Conveyance and Claims Regulations

    Upon default of an FHA-insured mortgage, the mortgagee must engage 
in loss mitigation for the purpose of providing an alternative to 
foreclosure. Should such loss mitigation efforts be unsuccessful, the 
mortgagee will generally foreclose and convey the property to HUD in 
exchange for an FHA mortgage insurance claim. HUD generally requires 
the mortgagee to convey the property unoccupied, but in certain 
circumstances, as described in HUD's occupied conveyance regulations at 
24 CFR 203.670-203.681, HUD will accept the property occupied. In cases 
where the regulations would not permit the occupied conveyance of the 
property, the mortgagee must evict the occupant before conveying the 
property to HUD. Various laws, usually state or local, but now also 
PTFA, affect eviction procedures and the length of time it takes to 
evict. HUD's claims regulations at 24 CFR 203.356(b) provide that the 
mortgagee must exercise ``reasonable diligence'' in prosecuting the 
foreclosure proceedings to completing and in acquiring title to and 
possession of the property. (Failure to foreclose and evict in 
accordance with this reasonable diligence time frame could lead to 
curtailment of debenture interest on the mortgagee's FHA insurance 
claim as described in section 203.402(k) of the regulations.) HUD 
publishes state-by-state reasonable diligence time frames by Mortgagee 
Letter. Most recently, Mortgagee Letter 2005-30 provided that an 
automatic extension of the reasonable diligence time frame will be 
allowed for the actual time necessary to complete the possessory action 
provided that the mortgagee begins such action promptly. Therefore, HUD 
regulations and Mortgagee Letters already provide mortgagees the 
additional time they may need to evict under the PTFA, i.e., in many 
cases at least an additional 90 days. As mortgagees may have been 
confused about the interaction between the PTFA and the occupied 
conveyance regulations, this Notice serves to confirm that: (1) HUD 
expects mortgagees to comply with the PTFA; and (2) the additional time 
needed to evict an occupant pursuant to the PTFA is automatically 
included in the reasonable diligence time frame.
    Mortgagees should follow the procedures below:
    1. The mortgagee should follow HUD's standard occupied conveyance 
procedures by sending out the standard occupied conveyance letters to 
the occupant 60-90 days before the mortgagee expects to acquire title.
    2. If HUD (through its contractors) grants occupied conveyance, the 
mortgagee shall convey the property occupied under HUD's normal 
occupied conveyance procedures.
    3. If HUD denies occupied conveyance, the mortgagee should 
determine whether the PTFA is applicable (e.g., whether there is a bona 
fide lease or tenancy, etc.).
    4. In cases where the mortgagee determines that the PTFA is 
applicable, the mortgagee must follow the PTFA before evicting the 
occupant. The additional time needed under the PTFA to evict the 
occupant is automatically added to the reasonable diligence time frame. 
The mortgagee must retain documentation in the claim file to evidence 
the applicability of the PTFA and the additional time needed to comply 
with the PTFA.
    5. In cases where the occupant would have the right under the PTFA 
to remain in the property for more than 12 months after the foreclosure 
(e.g., under the terms of a bona fide lease under section 702(a)(2)(A) 
of the PTFA), the mortgagee may contact the Mortgagee Compliance 
Manager for additional instructions.
    In addition to this notice, FHA will issue additional guidance to 
FHA-approved mortgages.

    Dated: October 22, 2010.
David H. Stevens,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 2010-27309 Filed 10-27-10; 8:45 am]
BILLING CODE 4210-67-P