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On August 31, the California governor signed AB 3088, which provides relief from eviction and foreclosure due to the economic impacts of Covid-19. Pursuant to AB 3088, a tenant may not be evicted before February 1, 2021 if a Covid-19-related hardship caused the tenant to miss a rent payment accruing between March 4 and August 31, 2020, if the tenant provides a declaration of hardship that complies with certain timelines set forth in the legislation. For hardships that accrue between September 1, 2020, and January 1, 2021, tenants must pay a portion of the rent due to avoid eviction. Among other things, the legislation also extends anti-foreclosure protections in the Homeowners Bill of Rights to small landlords.
On March 2, the OCC announced an update to the Protecting Tenants at Foreclosure Act booklet of the Comptroller’s Handbook. The revised booklet is intended to provide examiners with information and procedures concerning foreclosure activities and related consumer protections under the Protecting Tenants at Foreclosure Act of 2009 (PTFA). Among other things, the booklet provides a summary of requirements and addresses risks associated with a bank’s compliance with PTFA. The OCC notes that the Economic Growth, Regulatory Relief, and Consumer Protection Act made permanent certain sections of PTFA, and states that the applicable provisions “apply to any immediate successor in interest—including banks—that foreclose on a federally related mortgage loan or on any dwelling or residential real property, as defined in section 3 of [RESPA], that is subject to a bona fide lease, as defined in the PTFA and in 12 USC 2602.”
Sixth Circuit Holds PTFA Preempts Less Restrictive State Law, May Be Used To Establish State Law Causes Of Action
On February 7, the U.S. Court of Appeals for the Sixth Circuit held that while the Protecting Tenants at Foreclosure Act (PTFA) provides no private cause of action, plaintiffs may use violations of the PTFA to establish elements of a state law cause of action. Mik v. Fed. Home Loan Mortgage Corp., No. 12-6051, 2014 WL 486214 (6th Cir. Feb. 7, 2014). Tenants filed suit alleging they were unlawfully evicted from their rental home after their landlord defaulted on her mortgage and the property was sold at a foreclosure sale. The trial court held that the tenants only asserted claims under the PTFA, which does not grant a private right of action, and dismissed the complaint. On appeal, the Sixth Circuit affirmed that the PTFA does not provide a private cause of action, and that, under the Supremacy Clause, the PTFA preempts state law that is less restrictive of tenants. However, it held that, because tenants have no opportunity to raise PTFA as a defense in cases where successors in interest do not initiate judicial proceedings, they must be permitted to use available state law causes of action, such as wrongful eviction, to enforce the PTFA’s protections. To hold otherwise, the court explained, would render the PTFA’s protections virtually meaningless because “a foreclosure sale purchaser could ignore its protections with impunity, bypass judicial process and evict any tenant without notice or court process.” The court held that, here, the tenants’ allegations that the successor failed to meet certain requirements of the PTFA were sufficient to support a claim for the tort violation of wrongful eviction. The court did not find that the tenants similarly sufficiently alleged due process violations and outrageous infliction of emotional distress under Kentucky law. The court reversed in part and affirmed in part, and remanded for further proceedings.
On January 23, the California Court of Appeal, Sixth District, held that under the federal Protecting Tenants Against Foreclosure Act (PTFA) a lease survives foreclosure through the end of the lease term, except under limited circumstances, and allows tenants to bring state law claims for violation of the federal law. Nativi v. Deutsche Bank Nat’l Trust Co., No. H037715, 2014 WL 255587 (Cal. Ct. App. Jan. 23, 2014). Two tenants sued to challenge their eviction by a bank that through a nonjudicial foreclosure sale purchased the property the tenants were renting. The trial court held that the eviction was not improper because the foreclosure sale extinguished the lease under California law and, therefore, the bank, as immediate successor in interest did not step into the shoes of the landlord. The trial court held that the PTFA only required the bank to give a 90-day notice to vacate the premises; the PTFA did not require the bank to assist the tenants in recovering possession of the leased premises. On appeal, the tenants challenged the trial court’s interpretation of the PTFA. The appeals court held that the PTFA causes a bona fide lease for a term to survive foreclosure through the end of the lease term, and grants only limited authority of the immediate successor in interest to terminate the lease, with proper notice, upon sale to a purchaser who intends to occupy the unit as a primary residence. The court explained that while the PTFA impliedly overrides state laws that provide less protection, it expressly allows states to retain the authority to enact greater protections. The court added that California law protects bona fide tenancies for a term that continue by operation of the PTFA, and explained that although the PTFA does not itself provide a private right of action, it can be enforced through litigation under state law claims. After finding that there were triable issues of fact, the court reversed the trial court’s order granting summary judgment to the bank and reinstated the tenants’ claims.
On August 21, Illinois enacted SB 56, which adds rights for tenants of foreclosed properties. The law provides, among other things, that the entry of a judgment of foreclosure shall not terminate or otherwise affect the rights or interest of any occupant of a dwelling unit who has a lease or tenancy resulting from an arm's length transaction and who is not the mortgagor, whether or not the occupant has been made a party in the foreclosure. The bill also provides that the holder of the certificate of sale, the holder of the deed issued pursuant to that certificate, or, if no certificate or deed was issued, the purchaser at the sale shall: (i) assume the lease or tenancy of the mortgaged real estate resulting from an arm's length transaction entered into prior to the confirmation of sale; (ii) assume any federal, state, or local housing subsidy contract for the dwelling unit for the duration of the contract or the assumed lease, whichever is shorter; (iii) assume his or her interest in the mortgaged real estate subject to the rights of any occupant; and (iv) not terminate the occupancy or any occupant's tenancy, except as otherwise allowed under state law. The law also states that a deficiency judgment may not be sought or entered against a deceased mortgagor. All of the changes take effect on November 19, 2013.
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- Jeffrey P. Naimon to discuss "2021 - A new beginning/what's to come" at the QuestSoft Lending Compliance & Risk Management Virtual Conference
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- Daniel R. Alonso to discuss "Independent monitoring in the United States" at the World Compliance Association Peru Chapter IV International Conference on Compliance and the Fight Against Corruption
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- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Pandemic fallout – Navigating practical operational challenges" at the Mortgage Bankers Association Regulatory Compliance Conference
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