Many of the foreclosures hitting the Northern Virginia market were purchased as investment properties or turned into investment properties.  As housing prices soared and interest rates dropped, many want-to-be investors entered the market to earn a quick buck.  Some wanted to have a tenant for about a year and then sell it at the new inflated price; some wanted to flip the home in a matter of a few months.  What these investors did not count on was the housing market collapse and how quickly the market collapsed.  Virtually overnight, homes began to languish on the market and many investors were forced to put a tenant into their investments. 

The scary part is that many of these investors took the monthly rent and pocketed it.  They stopped paying the mortgage.  This leaves a tenant with few options once the home goes into foreclosure.  In Virginia, if the home is sold as a short sale while a tenant’s lease is in effect, the lease conveys.  If the home goes to foreclosure, the lease is void and the tenant is served an eviction notice.  Many tenants do not find out that their residence is in foreclosure until they are served the notice.  This leaves little time for them to collect money for a new security deposit (yeah, the security deposit you gave the guy who wasn’t paying the mortgage is probably gone), a first month’s rent, find a new place to live, and move.

On May 20, 2009 the Protecting Tenants at Foreclosure Act was passed as a smaller piece of the Families Save Their Homes Act of 2009 .  This bill ensures that tenants nationwide must be served at least 90 days notice to vacate the property if the purchaser of the foreclosed property intends to occupy the dwelling as their principle residence, and ensures that tenants can remain in the foreclosed property until the end of their lease unless the bank sells the property to someone who plans to occupy the property as their personal residence and 90 days notice to vacate must still be given. 

This is a victory for tenants across the nation who have been or could be effected by foreclosure.  However, this is another hurdle for buyers in today’s market.  Not many buyers are interested in purchasing a property with a tenant in place.  It will be very interesting to see how banks handle this new legislation.   Will they keep tenants in place while the property is on the market as an REO?  Or, will they serve the 90 days notice to vacate as soon as they foreclose on the property and wait to put it on the market?