Austin Real Estate Blog

Once you have established you are the owner of the foreclosure property, have reviewed it with your agent and lawyer you are faced with a significant choice. Should you evict the current tenants or should you continue with the lease they have already? Do you want to initiate a new lease with the current tenants? Those are crucial choices that must be made.

Rental properties purchased through the foreclosure auction process are often one wrought with choices. Typically, a foreclosure purchased rental does not require the current lease be honored, like when it is sold prior to foreclosure. Generally speaking, the new owner has the opportunity to evict the current tenants. This also allows for the new owner to establish a new lease with the current tenants.

Should you chose to accept even one rental payment while still under the previous agreement; you are, in effect, honoring the lease they are in. This means that you, as the new owner, would be bound by those terms until the lease expires and a new one is drawn up. Eviction after such an accepted payment would be difficult if they do not violate the rules of that lease.

By taking some time to understand the rules of the process, you are protecting yourself and the tenant. Should you desire to purchase a property like this, it is prudent to discuss all of your options with a real estate attorney and a real estate agent prior to purchase.

A new law means there are some caveats! Here is a summary from the Legal Aid Society of Cleveland

Upon a Foreclosure Sale of Residential Rental Property,
the Lease or Tenancy Continues with the New Owner

1. Issue. Upon a foreclosure sale of residential rental property, what is the effect of the sale on the tenant’s lease or month-to-month tenancy?

2. New federal law. Protecting Tenants at Foreclosure Act of 2009. S. 896, Pub. L. No. 111-22, §§ 701-704.

3. Effective date. May 21, 2009 (or, more precisely, May 20, 2009, at the time that the
President signed the bill).

4. Application of effective date. The federal law applies to any existing bona fide lease
or tenancy for residing in a property when the property is sold at a foreclosure sale, if
the sale occurs on or after the law’s effective date.

5. Bona fide lease or tenancy. The federal law applies only to bona fide leases and
tenancies, which means:
• The tenant is not the child, spouse, or parent of the mortgagor (former landlord);
• The lease or tenancy was the result of an arms-length transaction; and
• The rent is not substantially less than the fair market rent (or the rent is reduced
or subsidized due to a Federal, State, or local subsidy).

6. Tenants with a bona fide lease. Upon a foreclosure sale, the lease continues with
the new owner as the landlord and, absent cause for termination, it continues until
either (i) the end of the lease term or (ii) the new owner elects to use the property as
a primary residence and provides the tenant with a 90-day notice of termination.

7. Tenants with a bona fide month-to-month tenancy. Upon a foreclosure sale, the
tenancy continues with the new owner as the landlord and, absent cause for
termination, it continues until either (i) the new owner provides the tenant with a
90-day notice of termination or (ii) the tenant provides the owner with a state law
30-day notice of termination.

8. Tenants with a Housing Choice Voucher (aka Section 8) lease. Upon a
a foreclosure sale, the voucher lease (which may be a written month-to-month
tenancy after the first year) is treated the same as other leases (see item 6, above) and
other month-to-month tenancies (see item 7, above). In addition, upon a foreclosure
sale, the housing assistance payments (“HAP”) contract continues, with the new
owner subject to the terms of the HAP contract. The new owner may not terminate
the voucher lease on the “other good cause” business ground that it will assist in the
sale of the property.

As the recession strengthens its grip on the economy across the nation, Texas realizes that we won’t buck the trend. Kimball Hill Homes filed for bankruptcy earlier this year. Now, Kimball Hill Homes has decided to shutter operations. Yep, bankruptcy will not solve its problems. This is the first, in what appears to be a long line, of failures awaiting the local housing industry. I hope someone is able to buy the company and resume operations. It is a bit disconcerting to see such a large builder go down.

Here is a link to the full story.

http://www.chron.com/disp/story.mpl/headline/biz/6144784.html

I just got the below letter on the fax and all I can say is wow! I hadn’t heard anything about this since last year before the holidays.

You can read about it in the Austin Business Journal. Here is the TOUSA website where you’ll hear the Newmark Homes President talk about the reorganization and see a link for the reorganization press release in the lower left side of the screen.

I have one client under contract with Frederick Harris Estate Homes. I need to investigate any possible implications to this. If you have any info on this please shoot me an email.

January 29, 2008

Dear Realtor:

We are writing to bring you up to date on recent actions that Newmark Homes’ corporate parent, TOUSA, Inc,, has taken to ensure the Company has a long and prosperous future.

Today, TOUSA, Inc. and certain of its subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. TOUSA Homes’ brands – Engle Homes, Newmark Homes, Trophy Homes and Fredrick, Harris Estate Homes are included in this filing. The filing will allow us to restructure our balance sheet, preserve the Company’s value, and position it to navigate the challenging homebuilding market successfully.

Unlike other homebuilders that have recently landed in unplanned Chapter 11 cases as a result of industry conditions, we have taken steps to minimize the impact of the filing on our operations and to expedite our stay in bankruptcy. In connection with the filing, TOUSA also announced that we have reached a pre-negotiated deal with our senior noteholders to implement a restructuring plan.

As one of our active Realtors, you are a valuable part of our company and critical to our success. We want to assure you that TOUSA is not going out of business and that you can continue marketing and selling new homes from Newmark Homes with confidence because its corporate parent has taken the steps necessary to assure its long-term financial strength and stability.

Chapter 11 is a tool that allows companies to fix their financial problems so that they can stay in business and build upon their core strengths to serve the needs of their customers, It is important that you understand that this is a financial issue and not a reflection of our operations, We have been building high-quality homes at outstanding values from many years and will continue to do so.

All closings are expected to remain on schedule and our community building projects should continue uninterrupted. We’ve ensured that all Realtor commission(s) will be paid from escrow as per our normal course of business.

In short, the actions TOUSA has taken today will result in a stronger Newmark Homes that will be better able to cope with today’s challenging housing market and prosper once conditions return to normal.

It is also important to note that TOUSA’s affiliates that provide financial services are not included in the filing and will not be affected by it. This includes Universal Land Title, Inc., Preferred Home Mortgage Company and Alliance Insurance and Information Services. This means that customers who have obtained mortgages, title insurance and other financial services products from these businesses will not be impacted by the filing.

If you have any questions or concerns about recent developments, please do not hesitate to call your local contact or our toll-free information hotline at (8E36) 588-9290. Also please feel free to visit www.tousa.com for updates on our restructuring.

We appreciate your support and look forward to continuing our relationship with you.

Sincerely,
Brian Shields