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56 Legal Industry Update State Focus OHIO Utah Resurrects Tenant Protection Act By Marlon L. Bates, Scalley Reading Bates Hansen & Rasmussen, P.C. Just when the memories of the federal Pro- tecting Tenants at Foreclosure Act were starting to fade away, the typically conservative Utah legislature took a surprising turn by exhuming the corpse of this expired federal law and breath- ing new life into it. Effective May 10, the Utah legislature enacted a somewhat watered-down but significant version of the expired federal law. THE BONA FIDE TENANT Under the new law, which is codified in Utah Code Annotated Sections 57-1-25.5 (foreclosure) and Section 78B-6-802.7 (eviction), a new owner of residential real property following a foreclosure sale takes ownership subject to a "bona fide" tenant's right to occupy the foreclosed property. If the new owner intends to occupy the foreclosed property as the new owner's primary residence, then the tenancy can be terminated by giving at least 45 days' notice of termination to the tenant. If the new owner does not intend to occupy the foreclosed property as his or her primary resi- dence, then the new owner takes the title, subject to the terms of a "bona fide" tenant's "bona fide" lease agreement. A tenant is "bona fide" if they are not the trustor or the trustor's child, spouse or par- ent. A lease agreement is "bona fide" if it: was the result of an arm's-length transaction; was created before the foreclosure commenced; provides that the tenant has the right to the exclusive use and occupation of the property on an "at-will" basis or for a specified period of time that is no longer than 12 months; and requires the tenant to pay rent that is not substantially less than fair market value or is less than fair market value because it is subsidized by a federal, state, or local subsidy. If the tenant is not "bona fide," then the non- foreclosure eviction rules apply to permit eviction in an expedited manner. If the tenant is "bona fide" but there is no "bona fide" lease agreement, then the tenant is entitled to a notice which is not less than 45 days before the new owner requires the tenant to vacate the foreclosed property. Fortunately for lenders and servicers, this period of time is only half of what was required by the expired federal statute. e requirement that a "bona fide" lease agreement be for a period of time that is no longer than 12 months creates an interpretation problem that has yet to be resolved. If the lease agreement is longer than 12 months, is the lease agreement invalid as a "bona fide" lease agreement, thus per- mitting the new owner to terminate the tenancy by giving a 45-day notice? Or, alternatively, is the lease agreement still deemed to be "bona fide," but the term is shortened to no more than one year from its commencement date? In time, the language will be tested in court or revised by the legislature to eliminate this ambiguity. NOTIFYING THE TENANT e new law changes not only the post-fore- closure eviction process but the foreclosure process as well. Under the newly enacted provision, if the purpose of a loan was to finance residential rental property, the Notice of Trustee's Sale must contain a specific "Notice to Tenant" which informs the tenant that if the property is foreclosed, the tenant may be allowed to continue occupying the prop- erty until the lease agreement expires or 45 days after the date the tenant is served with a notice to vacate, whichever is longer. e exact language of the notice is set forth in the statute and must be given verbatim within the Notice of Trustee's Sale. Lenders and servicers in Utah must take care to ensure that the residential foreclosure process and post-foreclosure eviction process are done in accordance with this new law. OHIO Virginia Supreme Court Ruling Gives Borrowers More Post-foreclosure Leverage By James Clarke, Atlantic Law Group Prior to the recent Virginia Supreme Court decision in Parrish v. Fannie Mae, 787 S.E.2d 116 (Va. 2016)—the rehearing of which was denied October 7—a purchaser at foreclosure (either the lender or third party) would file a summary unlawful detainer action in General District Court, a court of limited jurisdiction, not of record. Superior title and right to posses- sion was determined by looking to the Trustee's Deed issued at foreclosure. e summary proceeding in General District Court is preferred due to cost and time savings. If a prior owner wished to challenge the validity of the foreclosure and therefore the validity of the Trustee's Deed, they would have to file an action in Circuit Court to invali- date the foreclosure and to stay the unlawful detainer action pending in the General District Court until resolution of the Circuit Court action. HOW THE PARRISH CASE CHANGED THINGS In Parrish, the Virginia Supreme Court held that once a foreclosure title defense was raised, the General District Court must make a deter- mination whether the allegations are sufficient to challenge the title conferred by the Trustee's Deed. To be sufficient, the allegations must: identify, with specificity, the provisions of the deed of trust required as a condition precedent to foreclosure; allege facts demonstrating the trustees failed to meet these conditions precedent so that the power of sale never accrued; and al- lege facts that the foreclosure purchaser knew or should have known of the defect. If the defendant meets this burden, the Gen- eral District Court, unable to try matters of title, is compelled to dismiss the unlawful detainer without prejudice. If the court determines the allegations to be insufficient, it retains jurisdiction to decide the unlawful detainer. Decisions of the General District Court are appealable de novo to the Circuit Court. If the borrower has not already filed a case challenging the foreclosure, the plaintiff would then need to seek quiet title and ejectment in Circuit Court. e impact is that if a borrower can demonstrate, with specificity, that a condition precedent to foreclosure was not met or that a de- fect exists in the power of sale foreclosure process, the foreclosure purchaser now has the costly and lengthy burden of proving the validity of the non- judicial foreclosure in court prior to gaining pos- session. A former owner now has much greater leverage to negotiate larger cash-for-keys deal or a post-sale rescission of the foreclosure, reinstate- "If the defendant meets this burden, the General District Court, unable to try matters of title, is compelled to dismiss the unlawful detainer without prejudice."

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