Tenant Act Forced Changes to Eviction Process: REO Expo Panel
A panel of asset managers and an attorney whose firm specializes in eviction law had stern warnings to REO brokers dealing with occupied properties — minimize your risks.
When the Protecting Tenants at Foreclosure Act (PTFA) was enacted in May 2009, it completely changed the way REO evictions are conducted, said Robert Jackson, president and managing attorney at the Irvine, Calif.-based Jackson and Associates law firm.
During a session at the REO Expo in Dallas, Jackson explained that, previously, when a foreclosure occurred, all other secondary liens were wiped out. But with the PTFA, tenant leases are given a "super priority" over the first lien mortgage.
The law is so inclusive, Jackson said, that even an oral lease between homeowner and tenant agreed to minutes before a foreclosure auction can be enforced in court. That's probably the hardest concept for those working in the REO space to understand, he said, because the law reversed existing legal precedent.
"PTFA was a complete shock to the industry, none of us saw it coming, none of us knew anything about it," Jackson said.
The new law creates new risk for all those involved in the foreclosure and eviction process. Jackson and the panel told the gathered REO brokers that tenant and homeowner lawsuits are on the rise, and it is vital for brokers to have extensive documentation of activities.
Previously, brokers would hire inexperienced employees, usually college students working for minimum wage to conduct occupancy verifications. Now, the extensive laws at the federal, state and municipal levels, necessitates employees specifically trained to handle occupancy verifications. Asset management companies rely on REO brokers to be the eyes and ears for the company and put a human face on the new owner of the property when dealing with the recently foreclosed upon homeowner, tenants and neighbors, while collecting as much information as possible.
"You used to walk up to a house, knock on the door and find out who's there," panelist Pamela Crocker of Lender Processing Services (LPS) Asset Management Solutions said. "That's not the way it is anymore. We need you to figure out who's living there and if they are the owner or tenant."
Brokers were warned to minimize risk by getting approval from asset management companies' legal departments for all documents left at the house. Sometimes, brokers will unintentionally open themselves up to lawsuits by opening mailboxes or looking at mail (a federal offense), or disclosing the wrong information to neighbors.
Another major change for brokers is that "cash for keys" is now called "relocation assistance." Brokers were told to tread lightly, and make sure they understand what laws in their state apply to them when making an offer. The same policy goes for lockouts and private property disposal.
And while some brokers have previously found success in taking a tough approach with homeowners, that behavior exposes everyone involved to litigation.
"In the old days, some REO brokers were successful by intimidating tenants," Jackson said. "Now, you're their best friend. You're there to help them."
Ray Orsini, an REO broker from Miami that attended the session, said the panel was informative because it explained the nuances of the PTFA. He added though, that servicers need to be more clear in their guidelines to brokers working in the field.
"It's fine to tell us to use common sense, but I'd rather hear specific guidelines for general practices," Orsini said. "That stuff is good to know to build your arsenal and know what you're up against."
Write to Austin Kilgore.
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