1. Foreclosure Face-Off Lender Attorney v. Borrower Attorney Overview of the Protecting Tenants at Foreclosure Act of 2009 (“PTFA”), plus resources. May 17, 2012 Arizona State Bar – Real Property Section CLE presented by Gregory D. Hague and Carrie Thompson Jones Carrie Thompson Jones Litigation Attorney, Trustee Pite Duncan, LLP 2 North Central Ave., Suite 1135 Phoenix, Arizona 85004 602-457-5784 (direct) cjones@piteduncan.com

2. Purpose of the PTFA Enacted by Congress at a time when an unprecedented number of foreclosures were occurring across the country. Enacted in 2009, clarified in 2010. To prevent a landlord’s foreclosure from abruptly displacing tenants with little or no notice. To ensure tenants’ rights are not immediately extinguished at foreclosure. Not to interfere or affect any state or local law that provides longer time periods or other additional protections for tenants. Designed to protect a limited, defined, and specific category of individuals and/or lease agreements considered bona fide under the Act.

3. Legislative Intent “[T]enants have almost no rights when a bank seizes their home... [and] as the housing crisis becomes more and more widespread, we need to make sure we are not just helping homeowners stay in their homes but also helping the thousands of tenants who are hit just as hard or even worse as a result of this crisis.” Statement of Senator Gillibrand; See 155 Cong. Rec. S5096 (daily ed. May 5, 2009). “Congress has done very little to help renters who have been paying their rent regularly on time but, unfortunately, they have landlords who are losing their property to foreclosure. So these renters are absolutely blameless victims in the foreclosure catastrophe that has hit the country.” Statement of Senator Kerry; id. at S5110... [w]hat we want to do is provide them with a provision where they will have [at least] 90 days...We are protecting legitimate, low- to moderate-income folks in America who do not get protections otherwise from being just booted out on the street, which is literally what has happened in the absence of this protection.” Statement of Senator Kerry; id. at S5174 (daily ed. May 6, 2009).

4. PTFA: Enacted & Updated The PTFA was originally enacted in May 2009, and was set to expire on December 31, 2012. ▫The PTFA is Title VII of the Helping Families Save Their Homes Act of 2009, the full text of which is available at the following link: http://www.gpo.gov/fdsys/pkg/PLAW- 111publ22/pdf/PLAW-111publ22.pdf http://www.gpo.gov/fdsys/pkg/PLAW- 111publ22/pdf/PLAW-111publ22.pdf  The PTFA can be found on pages 30 – 32. The Dodd-Frank Wall Street Reform and Consumer Protection Act clarified and expended the expiration date to December 31, 2014. ▫Full text of the Dodd-Frank Act is available at the following link: http://www.gpo.gov/fdsys/pkg/PLAW- 111publ203/pdf/PLAW-111publ203.pdf http://www.gpo.gov/fdsys/pkg/PLAW- 111publ203/pdf/PLAW-111publ203.pdf  The PTFA extension and clarification can be found on page 830.

5. Definitions for purposes of PTFA Notice of Foreclosure ▫This is the date on which title to a property is transferred to the successor-in-interest – such as after a sheriff sale or trustee’s sale, as per the Dodd Frank Act update. Bona Fide Lease or Tenancy ▫[1] The tenant(s) cannot be the former borrower’s parent, child, or spouse, neither can it be the former borrower. ▫[2] The lease or tenancy must be the result of an “arms- length” transaction. ▫[3] The lease or tenancy requires the receipt of rent that is not substantially less than fair market rent for the property.

6. Definitions from Black’s Law See Black's Law Dictionary 177, 109 (6th ed.1990) arm’s length transaction: “a transaction negotiated by unrelated parties, each acting in his or her self interest; the basis for a fair market value determination. A transaction in good faith in the ordinary course of business by parties with independent interests” bona fide: “in or with good faith; honestly, openly and sincerely; without deceit or fraud”

7. To fall under the Act A bona fide lease must be entered into before complete title to the property is TRANSFERRED to the successor-in-interest. That means a lease can be entered into up until the auction/sale! Also, tenants have to be bona fide (as defined above).

8. Protections Afforded to bona fide tenants affected by “foreclosure on a federally- related loan OR on any dwelling or residential real property” – pretty broad, doesn’t just mean FHA loans. The immediate successor-in-interest must take a foreclosed residential property subject to the existing lease and provide tenants with a Notice to Vacate at least ninety (90) days in advance of the date the property must be vacated. Also, the successor-in-interest cannot initiate an eviction action until after the 90-Day Notice has run and the property is still occupied. IF THEY SO ELECT, bona fide tenants are also entitled to remain in the property until the lease term or the duration of their tenancy ends UNLESS the successor-in-interest intends to use the property as a primary residence, then the bona fide tenant must vacate pursuant to the 90-Day Notice.

9. Scenarios What if the lease agreement chronologically predates the mortgage that was foreclosed? A.R.S. § 12-1173.01(B). What if the immediate successor in interest (A) sells the property to another buyer (B) prior to evicting the tenants, and B wants the tenants evicted immediately. Are the tenants protected under the PTFA? What if the lease agreement provides tenant pays $800 per month, but the rental comps prove FMV rents in the area are $1000? $1050? What if the former borrower who defaulted on his loan receives Notice of Sale, then enters into a lease agreement with an unwitting tenant prior to the trustee’s sale? Is the tenant protected? A.R.S. § 33-1331. What if tenant is an estranged wife of the former borrower? Ex-wife? Boyfriend?

10. Scenarios (cont.) What if the lease is oral? Written? Month-to-Month? Has a renewal provision? Has a five-year lease term with no renewal provision? Is unreasonable? What if tenant only has 37 days left on the lease – what would the notice requirement under the PTFA be? How is the payment of rent is to be handled during the PTFA notice periods? After title transfer? What if tenant defaults on the rental payments during the 90- Day Notice period? What other kinds of foreclosures are affected by PTFA? Who is responsible and/or liable for the maintenance of the property? Might be need to appoint a receiver. What others can you think of?

11. 90-Day Notice to Vacate (“NTV”) When and how to effectively notice a tenant: ▫NTV must be provided by the successor-in-interest. ▫Title must have passed to the successor prior to the NTV being issued to tenant. ▫Notice of Sale under A.R.S. § 33-808, or Notice of a Foreclosure as defined by Dodd Frank Act update to the PFTA do not serve as an NTV. ▫When more than ninety (90) days are left in the lease term, an NTV can be served at least ninety (90) days before the end of the lease term in order to properly notice a tenant to vacate at lease term end.

12. Cases (Arizona) Bank of N.Y. Mellon v. De Meo, 254, P.3d 1138 (Ariz. App. 2011) ▫Under the PTFA, the successor-in-interest bank must provide a 90-Day Notice to tenant prior to initiating an eviction action. Providing a 5-Day Notice, initiating an eviction action, then waiting over ninety (90) days to obtain judgment for eviction is NOT appropriate notice to a protected tenant under the PTFA. Also, two unpublished memorandum decisions to keep in mind when dealing with arms-length considerations and bona fide nature of tenancies: ▫U.S. Bank v. Gagliardi: 2010 WL 3385328 (Ariz. App. Div. 2) Whether a transaction is considered “arms-length” and whether rents are considered “fair market” for purposes of determining if a lease agreement is “bona fide” under the PTFA are issues of fact for the trial court to decide. ▫FNMA v. Sears: 2011-WL 6292220 (Ariz. App. Div. 1) Discussion re the kinds of considerations trial courts take into account when determining bona fide nature and arms-length transactions under the PTFA.

13. State Statutes ▫Arizona Revised Statutes  Under A.R.S. § 12-1173.01, an occupant of a property can be removed via a forcible entry and detainer civil action if they retain possession of the property after a foreclosure.  Under A.R.S. § 12-1178(c), and prior to the enactment of the PTFA, the occupant (tenant or former borrower) could have had a writ issued against him after only five (5) days from entry of judgment in an eviction action.  Under A.R.S. § 33-1331, enacted in 2010 after the PTFA, the Arizona state legislature codified notice requirements in order to protect those tenants who may have entered into a lease agreement with a landlord/borrower after a Notice of Sale. Provides the tenant must be notified by the landlord of the risk of imminent foreclosure, and provides remedies to the unwitting tenant who did not receive such notice. Therefore, a valid lease can be entered into even after the Notice of Sale (that starts the foreclosure clock ticking) has been issued to the defaulting borrower.

14. Resources Arizona Rules of Procedure for Eviction Actions (effective January 1, 2009) ▫http://www.azcourts.gov/portals/20/2008RulesA/R-07- 0023FinalRuleOrder.pdf Arizona Residential Landlord Tenant Act (revised July 20, 2011) ▫http://www.azsos.gov/public_services/publications/residential_landlor d_tenant_act/Residential.pdfhttp://www.azsos.gov/public_services/publications/residential_landlor d_tenant_act/Residential.pdf Bank of N.Y. Mellon v. De Meo, 254, P.3d 1138 (Ariz. App. 2011) ▫http://azcourts.gov/Portals/89/opinionfiles/CV/CV100177.pdf Federal Register Notices (multiple) ▫March 15, 2012: http://www.gpo.gov/fdsys/pkg/FR-2012-03- 15/pdf/2012-6297.pdfhttp://www.gpo.gov/fdsys/pkg/FR-2012-03- 15/pdf/2012-6297.pdf ▫October 28, 2011: http://www.gpo.gov/fdsys/pkg/FR-2010-10- 28/pdf/2010-27309.pdfhttp://www.gpo.gov/fdsys/pkg/FR-2010-10- 28/pdf/2010-27309.pdf

15. Resources (cont.) Protecting Tenants at Foreclosure Act of 2009 (Title VII of the Helping Families Save Their Homes Act of 2009, effective May 20, 2009, expires 12/31/2014) ▫Original:Original:  http://www.gpo.gov/fdsys/pkg/PLAW-111publ22/pdf/PLAW- 111publ22.pdf http://www.gpo.gov/fdsys/pkg/PLAW-111publ22/pdf/PLAW- 111publ22.pdf  (see page 30 - 32 of.pdf for start of Title VII) ▫Update in Dodd/Frank Act  http://www.gpo.gov/fdsys/pkg/PLAW- 111publ203/pdf/PLAW-111publ203.pdf http://www.gpo.gov/fdsys/pkg/PLAW- 111publ203/pdf/PLAW-111publ203.pdf  (see page 830 for pertinent section 1484) ▫ALSO: Check out this slip opinion (Slip Copy, 2011 WL 722388 (Bkrtcy.S.D.Cal.) re why you should always check for updates to the federal laws…