Understanding Foreclosure: Am I protected with a Bona Fide lease?
When a property is being foreclosed, the new owner must honor a bona fide lease until it terminates.
A bona fide lease or tenancy is a lease that meets the following criteria:
- The lease started before the date when the title is transferred to the new owner.
- The tenant is not the former owner or the former owner’s child, parent, or spouse.
- The lease was an arms-length transaction (or the lease was agreed to in a fair way); and
- The rent was not substantially below the market rate unless subsidized by federal, state, or local programs like Section 8
Example 1: Bona Fide Lease
Tenant has a written lease of January 1, 2023 to December 31, 2023. Title is transferred to the new owner on April 1, 2023. Tenant is a not related to former owner. Arms-length transaction. Market-rate rent. New owner does not intend to move in. |
New owner must honor the lease term that ends on December 31, 2023. New owner must give a 90-day notice to terminate the lease before December 31, 2023. |
Example 2: Not Bona Fide Lease
Tenant has a written lease of June 1, 2023 to June 30, 2024. Title is transferred to the new owner on April 1, 2023. Tenant is a not related to former owner. Arms-length transaction. Market-rate rent. New owner does not intend to move in. |
Not Bona Fide Lease because the lease started after the date title was transferred. |
Example 3: Bona Fide Lease
Tenant had a written lease of January 1, 2017 to December 31, 2017. They continued to pay rent and now have a verbal month-to-month tenancy. Title is transferred to the new owner on April 1, 2023. Tenant is a not related to former owner. Arms-length transaction. Market-rate rent. New owner does not intend to move in. |
This lease has no end date, because it is not a month-to-month tenancy. So, there's no end date that a new owner would need to honor. BUT New owner must still give a 90-day notice to terminate the lease. |
Example 4: Not Bona Fide Lease
Tenant had a written lease of January 1, 2017 to December 31, 2017. They continued to pay rent and now have a verbal month-to-month tenancy. Title is transferred to the new owner on April 1, 2023. Tenant is a the former owner's child. Arms-length transaction. Market-rate rent. New owner does not intend to move in. |
This lease has no end date, because it is not a month-to-month tenancy. So, there's no end date that a new owner would need to honor. Not a Bona Fide lease, because the tenant is related to the former owner. New owner only needs to give 30-day notice to tenants before being required to move. |