Posted By USFN,
Monday, April 12, 2021
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by E. Edward (“Ed”) Farnsworth, Jr., Esq.
Samuel I. White, P.C.
USFN Member (DC, MD, WV, VA)
Similar to the changes to the non-judicial foreclosure process during its 2021 Special Session, the Virginia General Assembly signed HB 2229 into law on March 30, 2021. The legislative changes afford greater protections to foreclosed tenants, arguably exceeding those of the Protecting Tenants at Foreclosure Act (“PTFA”).
The rights of foreclosed tenants are governed by the PTFA in Virginia because the Act affords greater protections than are contained the Virginia Code. Currently, the foreclosure sale terminates any existing lease, and the tenancy converted to month-to-month under Virginia Code § 55.1-1327(C). The amended statute strikes this language and adds “subject to” verbiage in its place and indicates a tenant with an existing lease may occupy the property for the duration of the remaining term. While this may seem facially consistent with the PTFA, absent are the enumerated requirements for a tenant to qualify as a “bona fide tenant” for protection—lease is the product of an “arm’s length transaction,” requires rent that is substantially fair rental value, and parents, children, and spouses are excluded from bona fide status. While it may still be possible to challenge a lease’s validity on similar common law grounds, if the circumstances warrant, it is unclear how receptive courts will be in the absence of specific qualifiers like those enumerated in the PTFA.
These changes could demonstrate a conflict as to the nature of forced sales versus voluntary transactions. First, such changes presume that rental and lease information are easily obtainable, as if these rentals are commonly maintained by professional property managers. The reality is that such rentals are commonly managed directly by the former owner. This means that the security deposit, rental history, and other pertinent information are not going to be obtainable from a willing source. Second, it presumes that the occupants themselves will be cooperative and forthright with lease and rental information, which is not always the case in a foreclosure situation.
From a processing standpoint, continued due diligence will be needed to obtain occupancy status and a copy of any alleged lease. Any lease provided should be carefully reviewed to ensure it was entered into between the foreclosure purchaser and alleged tenant, was executed prior to sale, and does not appear to be questionable as to its enforceability (i.e., rent that is woefully below fair rental value and/or entered into with a relative, suggesting the lease is a sham agreement). If an occupant claims they are a tenant but does not provide a lease or other rental information, the unlawful detainer should be filed, and the alleged tenant made to prove their tenancy in court. The statute also requires notice be sent to the tenant advising them of their rights under the statute and indicating to whom rent must be provided. The tenant can be evicted for any of the reasons afforded under the Virginia Residential Landlord Tenant Act, including failure to pay rent, and the notice is a precondition for enforcement of these rights. The new requirements are effective July 1, 2021.
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April 2021 e-Update
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