Do you live in Connecticut? Has your home been foreclosed upon, but you want to stay there for a little while longer? For free? Then Connecticut Attorney General Richard Blumenthal has the offer a lifetime for you: don’t answer the door when your lender comes knocking, and you’ll get at least 90 days free of charge.
It’s a message that seems to go against the tide of both Congress and the Obama administration—which have repeatedly asked homeowners to work with their lenders in times of trouble—and illustrates just how much leeway individual states really have in implementing vague federal laws.
In the case of tenants, the federal law in question is called the Protecting Tenants at Foreclosure Act (PTFA) – a new law passed last year by Congress, which provides tenants with new rights in a foreclosure and gives so-called “bona fide” tenants at least 90 days notice to vacate any property subject to foreclosure.
For those of you keeping score at home, a “bona fide” tenant under the federal law has to meet three criteria: they can’t be the note holder, or related to the note holder; the lease transaction itself must be considered legitimate and arm's length; and the rent charged on the property lease must be somewhere near market value.
Not that any of that matters in Connecticut, mind you, as we’re about to find out.
On February 3rd, the state AG’s office publicized what it called an initiative to stop “illegal evictions” of tenants from their homes once the landlord lost the house at a foreclosure sale; the state AG sent cease-and-desist letters to a number of servicers and their legal counsel warning them of numerous “violations” of the PTFA.
According to copies of letters I’ve reviewed, Blumenthal instructs servicers to “treat all occupants of foreclosed properties as bona fide tenants, unless there is credible evidence to the contrary.” The letters also ask lenders to “refrain from treating the mere failure to respond to a notice as evidence that the occupant is not a bona fide tenant.”
Let’s get ground-level here, since Blumenthal’s office clearly chose not to: any borrower who hides behind their door and refuses to answer gets treated as a “bona fide” tenant under the Federal law? Really? Apparently, it’s asking too much to expect at least some level of responsibility among the voting public in Connecticut. (Or even common courtesy, for that matter.)
Here’s why this matters. Most evictions, in Connecticut and elsewhere in the U.S., involve former owners (and not tenants). For former owners in Connecticut, there is no notice period – meaning that once the foreclosure is complete, eviction proceedings begin. Tenants have always had 60 days notice within the state, an inconvenient truth Blumenthal chose to ignore during his press conference. The PTFA, then, essentially gives some tenants (those that are "bona fide" as defined by the law) an extra 30 days over and above what the state already requires.
By treating any non-responsive occupant as a “bona fide” tenant, any Dick, Jane, or Harry willing to leave their front door closed can get three months' worth of free rent.
It gets even better: even if the servicer can find someone who will open their front door, and that someone identifies themselves as a tenant, that servicer isn’t allowed to verify such a claim. Meaning anyone can make the claim, since Blumenthal instructs servicers to “refrain from requesting proof that rent payments with the prior owner are current,” claiming that “such proof is not required” under the PTFA.
And if that weren’t already enough, servicers also are expected to honor any lease agreements entered into prior to the completion of a foreclosure – meaning, as Blumenthal’s letter states, “the date title passes to the foreclosing party.”
The PTFA only states that lenders must recognize leases “entered into before the notice of foreclosure,” which in Connecticut would be the lis pendens that notifies a homeowner that their home is entering the foreclosure process. It takes more than 3-4 months to go from start to finish on a foreclosure sale in Connecticut, so a troubled borrower who knows they are going to lose their home can – with blessing of the state AG – go find a renter for a few months, and pocket the money.
Of course, when the home is eventually lost at foreclosure months later, those unlucky tenants who had no idea they were being duped by the former owner get to complain loudly to the press about how they were duped. (And the banks get to take the blame for it, too.)
If Blumenthal was truly serious about protecting tenant’s rights, he wouldn’t allow this nonsense. He might even work with mortgage servicing execs — he's right by New York, for crying out loud — to understand the process he is trying to put under his thumb.
He could choose to enact notice requirements for tenants during the foreclosure process, for one thing, so they know a pending foreclosure is coming – California and Florida already require this of foreclosing lenders, for example, while Connecticut for some reason prefers to keep tenants in the dark.
He might also choose to require notices to tenants about to enter into a new lease, notifying them if their soon-to-be-landlord is in foreclosure on the property about to be leased.
He could push a state-sponsored system that allows consumers to check online – for free – the status of a property they are looking to lease, to see if it is in foreclosure before they sign. He might even push to pass a law outlawing sham leases by troubled homeowners facing foreclosure, and installing stiff penalties for anyone that tries it.
But these are just the sort of common sense ideas that don’t win votes ahead of an election year, now do they? After all, Blumenthal is running to fill Chris Dodd's soon-to-be vacant Senate seat.
– Paul Jackson is the publisher of HousingWire.com and HousingWire Magazine.
