[Federal Register Volume 77, Number 51 (Thursday, March 15, 2012)]
[Notices]
[Pages 15379-15382]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-6297]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket Number FR-5427-N-02]


Protecting Tenants at Foreclosure Act: Additional Guidance on 
Notification Responsibilities Under the Act With Respect to Occupied 
Conveyance

AGENCY: Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner, HUD.

ACTION: Notice.

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SUMMARY: This notice provides additional guidance on the notice, 
entitled ``Protecting Tenants at Foreclosure: Notice of 
Responsibilities Placed on Immediate Successors in Interest Pursuant to 
Foreclosure of Residential Property,'' published in the Federal 
Register on June 24, 2009, and supplemented by further information 
published on October 28, 2010. The October 2010 notice provided 
guidance on the relationship between the Federal Housing 
Administration's (FHA's) current regulations on occupied conveyance and 
the protections for existing tenants under the Protecting Tenants at 
Foreclosure Act of 2009 (PTFA). This notice provides further guidance 
on the relationship between FHA regulations and the protections for 
existing tenants under the PTFA.

FOR FURTHER INFORMATION CONTACT: James Hass, Housing Program 
Specialist, Office of Single Family Asset Management, Office of 
Housing, Department of Housing and Urban Development, 451 7th Street 
SW., Room 9172, Washington, DC 20410-8000; telephone number 202-708-
1672 (this is not a toll-free number). Persons with hearing or speech 
challenges may access this number through TTY by calling the toll-free 
Federal Information Relay Service at 800-877-8339.

SUPPLEMENTARY INFORMATION: 

I. Background of PTFA and HUD's June 2009 Notice

    The Protecting Tenants at Foreclosure Act of 2009, Title VII of the 
Helping Families Save Their Homes Act of 2009 (Pub. L. 111-22, approved 
May 20, 2009) (codified at 12 U.S.C. 5220 note), requires that any 
immediate successor in interest take a foreclosed residential property 
subject to the existing lease and provide tenants residing in the 
property with notice to vacate at least 90 days in advance of the date 
by which the successor, generally, the purchaser, seeks to have the 
tenants vacate the property. Except where the purchaser will occupy the 
property as the primary residence, the term of any bona fide lease 
entered into before the notice of foreclosure and extending beyond 90 
days also remains in effect. The PTFA was enacted during a period when 
unprecedented numbers of foreclosures were occurring across the 
country. Often, tenants residing as leaseholders in residential 
properties become collateral victims in addition to homeowners when 
foreclosures occur, and are forced to vacate their leaseholds, often 
with minimal notice. The PTFA ensures that tenants receive appropriate 
notice of foreclosure and are not abruptly displaced.
    Sections 702 and 703 of PTFA define the scope of PTFA's coverage 
over residential properties. The Section 702 requirements provide 
tenants with at least 90 days' advance notice to vacate and to preserve 
the term of any bona fide lease apply to foreclosures on all Federally 
related mortgage loans or on any dwelling or residential real property. 
Section 703 makes conforming changes consistent with the Section 702 
requirements to the Section 8 rental voucher assistance provisions of 
the United States Housing Act of 1937 (1937 Act). The protections 
provided by PTFA sunset on December 31, 2014.
    Section 1484 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Pub. L. 111-203, approved July 21, 2010) amended PTFA, 
and extended the PTFA protections to December 31, 2014. Section 1484 of 
the Dodd-Frank Wall Street Reform and Consumer Protection Act also 
defined when ``date of notice of foreclosure'' occurs. Section 1484 
provides in relevant part as follows: ``the date of a notice of 
foreclosure shall be deemed to be the date on which complete title to a 
property is transferred to a successor entity or person as a result of 
an order of a court or pursuant to provisions in a mortgage, deed of 
trust, or security deed.''
    To fall under the Act, a bona fide lease must be entered into prior 
to the date of the notice of foreclosure, which is defined as ``the 
date on which complete title to a property has been transferred to a 
successor entity or person as a result of an order of a court or 
pursuant to the provisions in a mortgage, deed of trust, or security 
deed.'' A bona fide lease is one in which: (1) The mortgagor or the 
child, spouse, or parent of the mortgagor under the contract is not the 
tenant; (2) the lease or tenancy was the result of an arms-length 
transaction; and (3) the lease or tenancy requires the receipt of rent 
that is not substantially less than fair market rent for the property 
or the unit's rent is reduced or subsidized due to a federal, state, or 
local subsidy. The requirements of the PTFA apply with respect to 
properties secured by FHA-insured mortgages as well as those in the 
Section 8 program.
    The notice that HUD published on June 24, 2009 (74 FR 3-1-6), 
addressed the general applicability of PTFA protections to HUD 
programs, provided basic guidance, and advised where HUD program 
participants and other interested parties may find more detailed 
guidance directed to HUD programs. Following issuance of the June 24, 
2009, notice, HUD began receiving questions about the interplay of the 
PTFA notice requirements with the notice requirements of FHA's occupied 
conveyance regulations. HUD therefore issued a second notice on PTFA to 
specifically address how the PTFA tenant protections work in the 
context of FHA regulations.

II. FHA's Occupied Conveyance Regulations--October 28, 2010 Notice

    The Federal Register notice, published by HUD on October 28, 2010 
(75 FR 66385), provided the following guidance on compliance with the 
FHA's occupied conveyance regulations, and the tenant protections 
provided by the PTFA.
    Upon default of an FHA-insured mortgage, and under FHA's existing 
regulations, the mortgagee must engage in loss mitigation for the 
purpose of providing an alternative to foreclosure. Should such loss 
mitigation efforts be unsuccessful, the mortgagee will generally 
foreclose and convey the property to FHA in exchange for an FHA 
mortgage insurance claim. FHA generally requires the mortgagee to 
convey the property unoccupied, but in certain circumstances, as 
described in FHA's occupied conveyance regulations at 24 CFR 203.670-
203.681, FHA will accept the property occupied. In cases where the 
regulations would not permit the occupied conveyance of the property, 
the mortgagee must acquire possession before conveying the property to 
FHA. Various laws, usually state or local, but now also PTFA, affect 
possessory action and the length of time

[[Page 15380]]

it takes to acquire possession of the property.
    FHA's claims regulations at 24 CFR 203.356(b) provide that the 
mortgagee must exercise ``reasonable diligence'' in prosecuting the 
foreclosure proceedings to completion and in acquiring title to and 
possession of the property. (Failure to foreclose and evict acquire 
possession in accordance with this reasonable diligence time frame 
could lead to curtailment of debenture interest on the mortgagee's FHA 
insurance claim as described in section 203.402(k) of the regulations.) 
FHA publishes state-by-state reasonable diligence timeframes by 
mortgagee letter. At the time of publication of the October 28, 2010, 
notice, HUD noted that FHA Mortgagee Letter 2005-30 provided that an 
automatic extension of the reasonable diligence timeframe will be 
allowed for the actual time necessary to complete the possessory action 
provided that the mortgagee begins such action promptly. Therefore, FHA 
regulations and Mortgagee Letters already provide mortgagees the 
additional time they may need to acquire possession under the PTFA, 
i.e., in many cases at least an additional 90 days. As mortgagees may 
have been confused about the interaction between the PTFA and the 
occupied conveyance regulations, the October 28, 2010, notice served to 
confirm that: (1) FHA expects mortgagees to comply with the PTFA; and 
(2) the additional time needed to acquire possession pursuant to the 
PTFA is automatically included in the reasonable diligence timeframe.

III. FHA Occupied Conveyance Regulations and PTFA Protections--
Additional Guidance

    Since issuance of the October 28, 2010, notice, mortgagees have 
sought additional guidance on this subject. This notice provides 
additional guidance regarding compliance with FHA's occupied conveyance 
procedures and the tenant protections of PTFA in light of recent 
changes in state and local laws relating to tenant protection. This 
guidance is also being provided directly to FHA-approved mortgagees 
through an FHA mortgagee letter.
    Tenant Protections Prior to PTFA. FHA historically required 
mortgagees to provide all property occupants (including former 
mortgagors) a Notice of Pending Acquisition (NOPA), within 60 to 90 
days prior to the date the mortgagee expected to acquire title to the 
occupied property. For many tenants, this may have been their first 
notification that ownership of a property was changing and that they 
would likely need to relocate in the near future. The NOPA also advised 
the occupants that there was a possibility of remaining in the property 
when ownership was conveyed to FHA if the occupants met certain 
criteria. However, the NOPA also cautioned that any continued occupancy 
after conveyance to FHA would be temporary.
    Prior to enactment of the PTFA on May 20, 2009, leases that did not 
pre-date the mortgage could usually be terminated by the new owner 
following completion of foreclosure. Additionally, although there were 
variations due to state or local law, most eviction actions required 
that advance notice to vacate be provided to occupants 60 days or less 
before the effective date of the eviction. The passage of the PTFA 
changes both of those situations.
    PTFA Tenant Protections. The PTFA generally provides, after the 
date of its enactment, that in the case of any foreclosure on a 
federally-related mortgage loan or on any dwelling or residential real 
property, any immediate successor in interest in such property pursuant 
to the foreclosure shall assume such interest subject to: (1) A notice 
to vacate to any bona fide tenant at least 90 days before the effective 
date of such notice; and (2) the rights of any bona fide tenant under a 
bona fide lease to occupy the premises until the end of the remaining 
term of the lease, except that a successor in interest may terminate a 
lease effective on the date of sale of the unit to a purchaser who will 
occupy the unit as a primary residence. FHA expects mortgagees to 
comply with the terms of the PTFA. As provided in section 702(a) of the 
PTFA, nothing in the PTFA shall affect any state or local law that 
provides longer time periods or additional protections for tenants.
    Mortgagee Compliance under PTFA. Before completion of foreclosure, 
the mortgagee must confirm the identity of all occupants, determine 
each occupant's possible rights for continued occupancy under the PTFA 
and state or local law, and attempt to obtain documentation of existing 
leases and tenancies.
    1. Revised Notice to Occupants of Pending Acquisition (NOPA). At 
least 60 days, but not more than 90 days before the mortgagee 
reasonably expects to acquire title, the FHA mortgagee shall notify the 
mortgagor and each head of household who is occupying a unit of the 
property of its potential conveyance to FHA following foreclosure. The 
notice(s) shall provide a summary of the conditions under which 
continued occupancy is permissible and other information specified in 
24 CFR 203.675(b). A sample Notice to Occupant of Pending Acquisition 
and related documents to be used for this purpose accompany this 
notice. Mortgagees should make any additional changes to the NOPA that 
are required to be in compliance with PTFA, state, or local laws. If 
the occupant responds to the NOPA and FHA approves occupied conveyance, 
the mortgagee shall convey the property occupied under FHA's existing 
occupied conveyance procedures.
    Mortgagees must begin using the revised NOPA and related documents, 
with additional changes that are required to be in compliance with 
PTFA, state, or local law, no later than July 1, 2012.
    2. Occupancy rights under PTFA and state and local law. If FHA 
denies occupied conveyance, the mortgagee must confirm if PTFA is 
applicable (i.e., whether there is a bona fide lease or tenancy, etc.) 
or if there is some other occupancy protection under state or local law 
that would require the mortgagee to delay action to obtain possession 
of the property. Mortgagees shall fully comply with applicable PTFA and 
state and local law and provide required notices to occupants.
    The additional time needed under the PTFA (or specific state or 
local laws) to obtain possession of the property is taken into 
consideration when evaluating compliance with FHA's reasonable 
diligence timeframe. The mortgagee must retain documentation in the 
claim file to support the additional time needed to comply with PTFA 
(or other state or local occupancy requirements). Upon expiration of 
the tenancy protection, mortgagees are expected to proceed promptly 
with possessory actions.
    3. Rent Collections. FHA expects mortgagees to attempt to collect 
rents payable under bona fide leases and tenancies and, in the event of 
default, to take possessory action pursuant to the contract terms and 
applicable law. Any rents received by a mortgagee during the term of 
the bona fide lease or tenancy must be reflected as a credit on line 
115 of Form HUD-27011, Single-Family Application for Insurance 
Benefits. This form can be accessed at http://portal.hud.gov/hudportal/documents/huddoc?id=DOC_14619.pdf.
    4. Preservation and Protection Costs. Additional routine 
preservation and protection costs, including lawn maintenance and 
inspections, that are incurred as a result of an extended lease or 
tenancy will be reimbursed pursuant to the schedule in Mortgagee Letter 
2010-18, Update of Property and Preservation (P&P) Requirements and 
Cost Reimbursement Procedures. This mortgagee letter can be accessed at

[[Page 15381]]

http://portal.hud.gov/hudportal/documents/huddoc?id=DOC_14634.pdf.
    Paperwork Reduction Act. The information collection requirements 
contained in this document have been approved by the Office of 
Management and Budget (OMB) under the Paperwork Reduction Act of 1995 
(44 U.S.C. 3501-3520) and assigned OMB control number, 2502-0429. In 
accordance with the Paperwork Reduction Act, HUD may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information unless the collection displays a currently valid OMB 
Control Number.

IV. Additional Questions About PTFA and FHA Occupied Conveyance 
Regulations

    Any questions regarding this subject may be directed to HUD's 
National Servicing Center (NSC). The NSC's toll free number is 877-622-
8525; its email address is [email protected]. Persons with hearing or 
speech impairments may reach NSC's number via TDD/TTY by calling 1-877-
TDD-2HUD (1-877-833-2483).

    Dated: March 9, 2012.
Carol J. Galante,
Acting Assistant Secretary for Housing--Federal Housing Commissioner.
Sample Notice to Occupant of Pending Acquisition (To be prepared and 
submitted by the mortgagee to all occupants)

NOTICE TO OCCUPANT OF PENDING ACQUISITION

(Name) (Date)
(Street Address)
(Town or City)

(HUD/FHA Case No.)

AVISO IMPORTANTE PARA PERSONAS DE HABLA HISPANA. ESTO ES UN AVISO MUY 
IMPORTANTE. SI NO ENTIENDE EL CONTENIDO, OBTENGA UNA TRADUCCI[Oacute]N 
INMEDIATAMENTE. SI USTED NO RESPONDE DENTRO DE VEINTE (20) D[Iacute]AS, 
PUEDE QUE TENGA QUE MUDARSE DE LA CASA O APARTAMENTO EN QUE VIVE.

Dear:------------------------------------------------------------------
    The mortgage for the property in which you are living is in 
foreclosure as a result of the property owner's default. Within the 
next 60 to 90 days, title to the property is expected to be transferred 
to [NAME OF MORTGAGEE]. Some time thereafter, ownership of the property 
will probably be transferred to the Secretary of Housing and Urban 
Development (HUD).
    HUD generally requires that there be no one living in properties 
conveyed to the Secretary as a result of a foreclosure. As the Federal 
Housing Administration's (FHA) single family program is a mortgage 
insurance program, it must sell all acquired properties and use the 
proceeds of sale to help replenish the FHA Mortgage Insurance Fund. It 
is not a rental program. There are other programs within HUD that 
assist in making rental housing available.
    However, before [NAME OF MORTGAGEE] conveys the property to HUD, 
you may be entitled to remain in the property for some period of time, 
pursuant to the Protecting Tenants at Foreclosure Act of 2009 (PTFA) or 
state or local law. If you are a bona fide tenant (someone other than 
the mortgagor, or the child spouse or parent of the mortgagor occupying 
the property pursuant to a bona fide lease or tenancy), a separate 
notice regarding your occupancy rights under PTFA will be provided to 
you when complete title to the property is transferred to (name of 
mortgagee) as a result of an order of a court or pursuant to provisions 
in the mortgage, deed of trust or security deed.
    Instructions: Mortgagees may insert here any language they deem 
necessary to inform occupants of the conditions under which they might 
be eligible to remain in the property pursuant to the PTFA or state or 
local law, and/or for the mortgagee to request information from the 
occupant that would be needed for the mortgagee to determine whether 
the occupant qualifies.
    If you are not entitled to remain in the property pursuant to the 
PTFA or state or local law, you may nevertheless be eligible to remain 
in the property upon conveyance to HUD, if certain conditions are met, 
as described in Attachment 3, Conditions for Continued Occupancy. To be 
considered for continued occupancy upon conveyance to HUD, you must 
submit a written request to HUD within 20 days of the date at the top 
of this letter. Oral requests are not permitted.
    Please use the enclosed Attachment 1, ``Request for Occupied 
Conveyance'' (form HUD-9539), in making your request as it gives HUD 
information it needs to make its decision. You must send your request 
and the enclosed Attachment 2 ``Request for Verification of 
Employment'' authorization to HUD's Mortgagee Compliance Manager (MCM) 
at the following address: [MORTGAGEE'S ADDRESS].
    If an individual residing in the property suffers from a permanent, 
temporary, or long-term illness or injury that would be aggravated by 
the process of moving from the property, please also provide supporting 
documentation of the illness or injury. This documentation must include 
a projection of the date that the individual could be moved without 
aggravating the illness or injury and a statement by a state-certified 
physician establishing the validity of your claim.
    Additional information that you wish to include with your request 
may be written on additional pages that you attach to the ``Request for 
Occupied Conveyance'' form.
    If HUD approves your request to remain in the property, you will be 
required to sign a month-to-month lease and pay rent at the prevailing 
fair market rate. If HUD does not in fact become owner of this 
property, any decision it may make with respect to your continued 
occupancy will no longer apply.
    Your right to continued occupancy of the property under HUD's 
Occupied Conveyance policies will only be temporary, depending on the 
circumstances, as described in Attachment 4, Temporary Nature of 
Continued Occupancy.
    For assistance in finding affordable housing, you may wish to 
contact one or more of HUD's approved housing counseling agencies. 
These agencies usually provide services at little or no cost. A 
counselor may be able to recommend other organizations that can also be 
of assistance. If you have access to the Internet, you may locate a 
local housing counseling agency by visiting the following Web page: 
www.hud.gov/offices/hsg/sfh/hcc/hccprof14.cfm. Alternatively, you may 
call the HUD Housing Counseling and Referral Line, weekdays between 9 
a.m. and 5 p.m. EST. The Referral Line telephone number is (800) 569-
4287.
    If you have any questions concerning this notice, please contact 
[NAME AND CONTACT INFORMATION OF MORTGAGEE].
Sincerely,

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Signature
Title

Attachments

Attachment 1 (Request for Occupied Conveyance--Form HUD-9539)
Attachment 2 (Request for Verification of Employment) NOTE: Mortgagees 
may use their own standard employment verification forms.
Attachment 3 (Conditions for Continued Occupancy)
Attachment 4 (Temporary Nature of Continued Occupancy)

[[Page 15382]]

Attachment 3 (Conditions for Continued Occupancy) (to Mortgagee's 
Notice of Pending Acquisition)

HUD's Occupied Conveyance Program

CONDITIONS FOR CONTINUED OCCUPANCY

    The following conditions must be met before HUD can approve the 
occupied conveyance of an acquired property.
    1. One or more of the following must be met, as determined by HUD 
in HUD's sole and absolute discretion pursuant to authority provided in 
FHA occupied conveyance regulations 24 CFR Sec.  203.670 through Sec.  
203.681 and additional guidance provided by the Department:
    a. Your occupancy is necessary to protect the property from 
vandalism;
    b. The average time in inventory for HUD's unsold inventory in the 
residential area in which the property is located exceeds six months;
    c. With respect to two-to-four-unit properties, the marketability 
of the property would be improved by your continuing occupancy.
    d. The high cost of eviction or relocation expenses makes eviction 
impractical; or
    e. An individual residing in the property suffers from a permanent, 
temporary, or long-term illness or injury that would be aggravated by 
the process of moving from the property.
    2. The house must be habitable (except for approval under condition 
1(e)).
    3. You must have been living in the house at least 90 days prior to 
the date the lender acquires title to the house (except for approval 
under condition 1(e)).
    4. You must agree to sign a month-to-month lease at fair market 
rent on a form prescribed by HUD at the time HUD acquires the property.
    5. You must have the financial ability to make the monthly rental 
payments under the terms of the lease.
    6. You must agree to pay one month's advance rent when you sign the 
lease (except for approval under condition 1(e)).
    7. You must allow access to the property during normal business 
hours:
    (a) By HUD representatives for a physical inspection of the 
property, with two days advance notice.
    (b) By HUD contractors doing repairs, with two days advance notice.
    (c) By real estate brokers and their clients with two days advance 
notice.
    8. You must disclose the complete and accurate social security 
number (SSN) assigned to you and to each member of your household.
Attachment 4 (Temporary Nature of Continued Occupancy) (to Mortgagee's 
Notice of Pending Acquisition)

TEMPORARY NATURE OF CONTINUED OCCUPANCY

    This is to advise you that occupancy of HUD-owned property is 
temporary in all cases and is subject to termination to facilitate 
preparing the property for sale and completing the sale. Temporary 
means that your lease arrangement with HUD is subject to termination at 
the convenience of the government upon 30 day's notice, or otherwise in 
accordance with applicable law. You should not view your occupancy of 
the property as a permanent or long-term arrangement. It is HUD's 
policy to ask you to vacate the property and, if necessary, take 
appropriate eviction action for the following causes:
    1. Your failure to execute the lease.
    2. Your failure to pay the required rent, including the initial 
payment at the time of execution of the lease.
    3. Your failure to comply with the terms of the lease.
    4. Your failure to allow access to the property upon request to 
accomplish necessary repairs, inspect the property, or allow real 
estate brokers to show the property to a prospective purchaser.
    5. Necessity to facilitate preparing the property for sale and 
completing the sale.
    6. Assignment of the property by HUD to a different use or program.
[FR Doc. 2012-6297 Filed 3-14-12; 8:45 am]
BILLING CODE 4210-67-P