Eviction After Foreclosure

WARNING:
THIS BLOG MUST BE UPDATED to reflect the provisions of the "Protecting Tenants At Foreclosure Act," Public Law 111-22, signed into law by President Obama on 5/20/09

The purchaser at a foreclosure sale may evict tenants in possession of the subject building even if their leases have not expired. This is because most leases contain a "subordination" clause which provides that the lease and tenant's rights are subordinate to all present and future mortgages.

The purchaser at a foreclosure sale may obtain possession by way of a writ of assistance [RPAPL Section 221] or by bringing a holdover proceeding in housing court [RPAPL Section 713(5)].

If the purchaser elects to bring a holdover proceeding, the purchaser must serve the tenant with a ten-day notice pursuant to RPAPL Section 713(5) and "exhibit" a certified copy of the Deed to the tenant. The ten-day notice must be served in accordance with RPAPL 735, that is, in the same manner as a notice of petition and petition.

The requirement to exhibit the Deed can be satisfied by annexing a certified copy of the Deed to the ten-day notice. The Deed need not be certified by the County Clerk - it is sufficient if an attorney certifies the Deed pursuant to CPLR 2105. Practice pointer: the attorney's original signature, in ink, must appear on the certification and the certification page must be on the last page.

Tenants may assert the following defenses to a holdover proceeding brought pursuant to RPAPL Section 713(5):

• improper service of the notice
• improper service of the notice of petition and petition
• defective notice
• failure to "display" certified copy of Deed to tenant or improper certification
• failure to name the tenant as a party defendant in the foreclosure proceeding
• naming tenant as "John Doe" without making a "diligent inquiry" to learn the tenant's true name (see CPLR 1024) or
• tenant is protected by rent stabilization or rent control.

The holdover petition need not allege whether or not the building is a multiple dwelling or, if the premises is a multiple dwelling, that a multiple dwelling registration statement has been filed.

The tenant who entered into a lease after the foreclosure proceeding has been commenced does not have a defense so long as the plaintiff in the foreclosure proceeding filed a notice of pendency after filing the foreclosure proceeding and before the tenant entered into the lease.

Taking Over a Townhouse for Owner's Personal Use

Real estate brokers who are selling townhouses and brownstones which are occupied by rent-stabilized tenants should consider marketing the property to an individual who wishes to occupy the entire building for his / her own personal use.

Of course the real estate broker must be careful not to give legal advice, and must warn the prospective purchaser that he or she should consult with a landlord tenant attorney for an opinion regarding the viability of the owner use option prior to signing a contract of sale. Similarly, the seller must be warned not to make any written representations regarding the viability of an owner use proceeding.

If the new owner has a good faith intention of occupying the subject building for his / her own use - or for the use of an immediate family member - as a primary residence in the City of New York, the housing court may allow the new owner to evict the rent stabilized tenants. The new owner must be an individual or individuals - not a corporation.

In a case called Pultz v. Economakis, the owner sought to recover all fifteen rent stabilized apartments in the five story apartment building. The highest court of the State of New York - the Court of Appeals - decided that this was okay, because the rent stabilization code permits an owner to recover one or more rent stabilized apartments for owner's personal use. A new law has been proposed to limit an owner to the recovery of only one rent stabilized apartment in owner's building, but due to the current stalemate in Albany, it has little chance of passing this year.

If the rent-stabilized tenant - or tenant's spouse - is 62 years of age or older, or is disabled, then the new owner cannot obtain possession of the tenant's apartment unless the new owner offers the tenant (1) equivalent of superior accommodations (2) at the same or lower regulated rent (3) in a closely proximate area. (Some judges have found that this requirement applies to the tenant's elderly or disabled gay life partner, in addition to the tenant's spouse). Since most owners will find it difficult or impossible to offer alternate accommodations, the tenant's advanced age or disability may preclude or derail an owner use holdover proceeding.

For this reason, real estate brokers should consider asking sellers of brownstones or townhouses for a breakdown of the ages and disability status of their rent stabilized tenants and their tenants' spouses.