QUESTION
I have subscribed to
your weekly FAQ for many years. It must be a labor of love, but I’m sure you
and your colleagues enjoy offering your guidance in such a forthright way! I am
an Assistant General Counsel for a bank with a servicing department. My
question concerns the Protecting Tenants at Foreclosure Act. Our attorneys
follow the required eviction process. My understanding is that there is no
private right of action under this Act.
My question is, can you
provide some history and reach of the Act?
Also, is there a private
right of action under the PTFA?
ANSWER
Thank you for your kind
words. Our FAQ is a labor of love – one that we happily embrace!
The Protecting Tenants
at Foreclosure Act of 2009 (PTFA) protects tenants from immediate eviction by
persons or entities that become owners of residential property through the
foreclosure process in relation to a “federally related mortgage loan.” The
terminology “federally related mortgage loan” is defined by the Real Estate
Settlement Procedures Act (RESPA) as any loan secured by a lien on one-family
to four-family residential real property, including cooperatives and
condominiums.
Under the PTFA, the
immediate successor in interest at foreclosure must:
- Provide bona fide tenants with at least 90 days’ notice
prior to eviction.
- Allow bona fide tenants with leases to
occupy the property until the end of the lease term, except the lease can
be terminated on 90 days’ notice if the unit is sold to a purchaser who
will occupy the property.
For some history, the
original PTFA was enacted during a period when unprecedented numbers of
foreclosures were occurring across the country. Tenants with leases often
become collateral victims in addition to homeowners when foreclosures occur and
are forced to vacate their leased homes – often with minimal notice. The PTFA
attempts to ensure that tenants receive notice of foreclosure and are not
abruptly displaced.
A lease or tenancy
is bona fide if the tenant is not the mortgagor or the parent,
spouse, or child of the mortgagor, the lease or tenancy is the result of an
arm’s length transaction, and the lease or tenancy requires rent that:
(1) is not substantially lower than fair market
rent; or
(2) is reduced or subsidized due to a federal, state, or local subsidy.
(2) is reduced or subsidized due to a federal, state, or local subsidy.
The law does not cover
tenants facing eviction in a non-foreclosed property, tenants with a fraudulent
lease, tenants who enter into lease agreements after a foreclosure sale, or
homeowners in foreclosure.
The PTFA appears to
contain a significant flaw, at least from the tenant’s point of view, considering how a
federal district court in Hawaii recently ruled. [Kaauamo v. Legacy
Development, LLC, 2019 U.S. Dist. (D. Haw. Apr. 12, 2019)]
Briefly, here’s the
case. Wells Fargo foreclosed on real property located in Maui, Hawaii. In the
Spring of 2018, Wells Fargo sold the property to Legacy Development. According
to Kaauamo, she had been a lessee of the property for five years, leasing it
from her aunts, who had owned the property before the foreclosure. She claimed
that she was a bona fide tenant within the meaning of the PTFA
and that she had the right to live on the property until the lease expired in
2030. She also alleged that Legacy violated the PTFA by not giving her 90 days’
notice prior to eviction. Legacy had retained Maui Process Services (“MPS”) and
its employee, Williams, to assist with evicting Kaauamo.
Kaauamo sued Legacy and
MPS pro se, claiming violations of the PTFA, among other claims.
MPS and Legacy separately filed motions to dismiss, asserting that Kaauamo had
failed to state a PTFA claim because her lease was void and because she was not
a bona fide tenant within the meaning of the PTFA.
But the court dismissed
the action, holding that Kaauamo had no right to bring it. The U.S. Court of
Appeals for the 9th Circuit had held that Congress did not create a private
right of action to enforce the PTFA. [Logan v. U.S. Bank Nat. Ass’n, 722 F.3d
1163 (9th Cir. 2013)]
The 9th Circuit in
the Logan case – reportedly one of first impression in the
U.S. Courts of Appeal – had viewed its role as one of determining, as set forth
by the U.S. Supreme Court, whether the PTFA, either explicitly or by
implication, evinces a Congressional intent to create a private right of
action.
The parties acknowledged
that the statute does not explicitly create a private cause of action because
nothing in its text references the availability of any action to enforce its
provisions, describes a forum in which an enforcement suit may be brought, or
identifies a plaintiff for whom a forum is available. Accordingly, the court
had to determine whether it could imply any private right of action from the
statute’s language, structure, context, and legislative history.
The 9th Circuit found
nothing in the language and structure of the PTFA to reflect a clear and unambiguous
intent to create a private right of action. Thus, in the court’s view,
“[t]he difficulty for Logan is that the PTFA
focuses on the ‘immediate successor in interest’ in the property—in other
words, the regulated party. [The PTFA] is framed in terms of the obligations
imposed on the regulated party…, while the ‘bona fide tenant’ is referenced
only as an object of that obligation. Statutes containing general proscriptions
of activities or focusing on the regulated party rather than the class of beneficiaries
whose welfare Congress intended to further ‘do not indicate an intent to
provide for private rights of action.’”
Furthermore, the PTFA
did not place Logan into a class for whose “especial” benefit the
statute was enacted. An “especial” beneficiary is not simply one who would
benefit from the Act, otherwise, the victim of any crime would be an especial
beneficiary of the criminal statute’s proscription. The conferral of benefits,
such as the right to 90 days’ notice to vacate and the right to continue
occupying the premises until the end of the remaining lease term, is not
enough. The PTFA’s focus on the parties regulated rather than the individuals
ultimately benefited weighed against implication of a private right of action.
The court rejected
Logan’s argument that the title of the statute evinced sufficient Congressional
intent to create a federal right in favor of tenants of foreclosed properties.
Though a title can be used to resolve ambiguity, it cannot control the plain meaning
of a statute.
Take note, also, that
the PTFA is part of a larger framework in which Congress did provide a private
cause of action for a different specified claim. The PTFA is part of the Helping
Families Save Their Homes Act of 2009 (Homes Act). A section of the Homes
Act added a notice requirement to the Truth-in-Lending Act (TILA),
which requires a new creditor to notify the borrower in writing of certain
information no later than 30 days after a mortgage loan is transferred or
assigned. That section explicitly amended the private right of action provision
of TILA, allowing any person to sue a creditor if the creditor failed to comply
with the newly enacted notice requirement. No such language accompanies the
PTFA. Because Congress included an express provision for private enforcement
under one section of the Homes Act, it is highly improbable that Congress
absentmindedly forgot to mention an intended private right of action for the
PTFA.
The legislative history
of the PTFA mentions that its ultimate purpose is to benefit tenants but is
silent regarding a remedy for tenants. The silence precludes further inquiry.
Moreover, when the PTFA was amended in 2010 to clarify the statute and extend
its application, Congress again was silent regarding any private right of
action even though several district courts had determined that no private
remedy existed under the PTFA. The court had to presume that Congress acted
with awareness of the judicial decisions.
Finally, the court noted
that the PTFA’s policy and requirements are not rendered unenforceable by the
absence of a federal private right of action. The PTFA is framed in terms of
“protections” for tenants, suggesting it was intended to provide a defense in
state eviction proceedings rather than a basis for bringing offensive suits in
federal court.
The court rejected an
argument that defense of a state eviction action would be inadequate to enforce
the PTFA in states that allow the purchaser at a foreclosure sale to remove a
tenant without judicial process:
“While we are troubled by such a possibility, we
have not been presented with concrete facts in this case that allow us to
evaluate that scenario. Nor can this policy consideration override
congressional intent not to incorporate a private right of action.”
So, may a financial
institution ignore the PTFA’s requirements without risk? No.
Besides the risk of a
tenant raising PTFA rights as a defense to eviction, as I’ve described above, a
federal agency may criticize a financial institution during an examination or
during a mortgagee review. You might want to explore examination readiness
further by reading Section V (Protecting Tenants at Foreclosure Act) in the
FDIC’s Compliance Examination Manual (June 2019). Keep in mind also that the
U.S. Department of Housing & Urban Development and the Federal Housing
Administration will frown on mortgagees that fail to conform to their
procedures. [See 75 Federal Register 66385 (Oct. 28, 2010)]
Jonathan Foxx, Ph.D.,
MBA
Chairman & Managing Director
Lenders
Compliance Group
