Sunset of the Protecting Tenants at Foreclosure Act

Written by Matt Pineda

For several years, the Protecting Tenants at Foreclosure Act of 2009 (Public Law 111-22) significantly affected the foreclosure process in North Carolina.  The Protecting Tenants at Foreclosure Act, or “PTFA”, set post-foreclosure guidelines in the evictions process regarding foreclosed properties with preexisting tenancies.  Under Section 702 of the PTFA, successors-in-interest to properties that were foreclosed assumed the interest subject to the rights of the current tenants of the properties, and in the case of a “bona fide tenant”, subject to the terms of any legitimate rental arrangement or lease entered into with the previous owner of the subject property.


The PTFA established that successors in interest to a subject property who would not be occupying the property as a primary residence would be required to allow a bona fide tenant occupying the property under a lease that was entered into prior to notice of foreclosure to occupy the premises until the end of the remaining terms of the lease.  Under the PTFA the tenant was only considered a “bona fide tenant” if: 1) the mortgagor or child, spouse, or parent of the mortgagor was not the tenant 2) the lease or tenancy was the result of an arms-length transaction and 3) the receipt of rent under the lease is not substantially less than fair market rent (with some exceptions).


This section of the PTFA, as applied to North Carolina, was requiring that in situations where properties became Real Estate Owned, the foreclosing noteholders were involuntarily mandated to enter into a landlord/tenant relationship with bona fide tenants that were occupying the property under the terms of a legitimate lease with the prior owner.  As many foreclosing noteholders have a regional or even national reach, this landlord/tenant relationship many times added the extra factor of finding and hiring local property managers in various areas to oversee these leases.


THE PTFA gave further protections even in situations where a tenant was a bona fide tenant without a lease, had a lease terminable at will under State law, or had an expired lease.  In these cases, the successor in interest was required to send a Notice to Vacate to the occupying tenant at least 90 days before the effective date of that notice.   This requirement still increased the total timeline for the foreclosure process in situations where the foreclosed property had occupying tenants and there was no lease or an expired lease.