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» VISIT US ONLINE @ DSNEWS.COM COVER STORY MARKET PULSE INDUSTRY INSIGHT I Word Play PTFA became law in 2009—with all its ambiguity. Congress attempted to clarify the poorly drafted statute in 2010. The clarification drastically changed the legislation's impact on servicers and occupants after foreclosure. PTFA and many state statutes did not define notice of foreclosure, for example. The lack of clarity left open the potential for wide and varying interpretation. U.S. Bank N.A. v. Hurtado1 illustrated the definitional confusion. In Hurtado, U.S. Bank attempted to evict occupants after foreclosure. The occupants argued they were bona fide tenants entitled to a 90-day notice under PTFA. The court held that the occupants were not bona fide tenants because they entered into a lease after the lis pendens. The court equated the lis pendens with the notice of foreclosure. Had the court decided the case after Congress amended PTFA in 2010, it likely would have had a different result. Ancillary Discrepancies Several other questions, obligations, duties, and procedural issues were not clearly defined in either the first or second version of PTFA. First is whether PTFA created a private right of action. U.S. Bank N.A. v. Logan2 analyzed, discussed, and decided the issue. In Logan, U.S. Bank filed an eviction action in state court without giving the mandated 90-day notice to vacate. Although U.S. Bank dismissed its eviction action, the tenant sought injunctive relief and damages. The Ninth Circuit Court held PTFA did not create a private right of action. Second is whether PTFA preempts current and existing state laws outlining pre-eviction notice requirements. The few courts that looked at the issue decided the owner post-foreclosure must also provide tenants with the pre-eviction notices required under state law.3 POINT— COUNTERPOINT Besides, numerous hurdles and issues come into play when removing occupants after foreclosure prior to reselling as a result of the Protecting Tenants at Foreclosure Act (PTFA)— issues that are compounded further by various states' laws (the Illinois Mortgage Foreclosure Law and the state's new Senate Bill 56 which was signed into law on August 21 with an effective date of November 19, 2013, for example)—as well as individual municipalities' statutes like the recently enacted Keep Chicago Renting (KCR) ordinance. At one time, the status quo was easy: Evict and sell. Now it is an area fraught with pitfalls and liability—even if the occupant stays and the home sells as a leased rental property. Third, there is no direction as to whether tenant occupants have any duty to do anything other than sit back and wait until the last second before producing a lease.4 Ambiguity, or lack of clarity, gives rise to potential liability. Servicers and their partners should seek clarity and appoint a receiver, which eliminates the unknowns and enables the servicer to identify the occupants, obtain the leases, and determine whether the leases are for fair market value. Receivers can evict under standard state eviction procedures; PTFA and state law eviction notices may not be a concern, especially if the receiver evicts before the notice of foreclosure is issued or the owner sells "as is." TECH s it time to loosen the regulatory belt and allow banks and servicers to enter the landlord-tenant business? When faced with foreclosing on a rental property, at a minimum, bank owners and servicers should retain the tenants and maintain the rent roll while trying to sell the property "as is" (meaning occupied with paying tenants). Properties are considerably more valuable as income-producing rentals than as vacant unknown commodities. MARKET PULSE Between PTFA, state laws, municipal ordinances, and lessor notices, the one distinct aspect of the rental market is a lack of clarity. The Notice Dilemma One of the issues with a lack of clarity, or the unknowns, is the duty to provide notices after foreclosure and before eviction. There are mandatory PTFA notice requirements as well as notices required by state statutes and sometimes even municipal ordinances. In Illinois, for example, post-sale/confirmation notice requirements are outlined in both the Illinois Mortgage Foreclosure Law and the KCR ordinance. The chart on the following page shows timing requirements and other issues associated with potential notices in this situation. If a property is located in the city of Chicago, for example, the servicer must post and serve both the state and municipal notices—10 notices within 21 days of becoming the owner of the property. And the Chicago ordinance requires eight of the 10 1 U.S. Bank N.A. v. Hurtado, 27 Misc.3d 933 (April 2010). See also RMS Residential Properties, LLC, v. Naaze, 28 Misc.3d 843 (Dist. Ct. June 16, 2010).2 U.S. Bank N.A. v. Logan, 2013 WL 3614465 (Ninth Circuit Court of Appeals, 2013).3 See GMAC Mortgage LLC v. Taylor, 27 Misc.3d 550 (March 2010); FNMA v Nunez, 460 Mass. 511 (Sept. 6, 2011).4 See Bank of America, N.A. v. Owens, 28 Misc.3d 328 (May 5, 2010); Fontaine v. Deutsche Bank National Trust Company, 372 S.W.3d 257 (Court of Appeals, Dallas, July 2012). 93

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