January 10, 2017
by E. Edward Farnsworth, Jr.
Samuel I. White, P.C. – USFN Member (Virginia)
When the federal Protecting Tenants at Foreclosure Act (PTFA) expired on December 31, 2014 — after being extended by Congress beyond the initial sunset date of December 31, 2012 — conventional wisdom was that it had vanished from the Virginia foreclosure landscape. Unlike its neighbor state Maryland, Virginia had not enacted a statutory scheme mirroring the PTFA, unequivocally enabling its survival post-sunset. As a result, it seemed Virginia tenants had no recourse in the event their landlord was foreclosed. Recently, however, a decision by the U.S. District Court for the Western District of Virginia has raised the specter that the PTFA may be alive and well in the Old Dominion.
The case of Wiendieck v. Wells Fargo Bank, N.A., WL 4444916 (W.D. Va. 2016), involved a tenant who had actually once owned the foreclosed property. As part of the sales transaction wherein Wiendieck sold the property to the foreclosed borrowers (giving rise to the subject deed of trust), the parties entered into a written, unrecorded “lifetime, rent-free lease.” After the foreclosure sale, Wells Fargo (the successful bidder) filed an eviction action in the county general district court. Wiendieck, in response, filed a suit in the county circuit court seeking specific performance and a permanent injunction to prevent interference with her rights as a tenant. The eviction case was non-suited and the circuit court case removed to federal court.
Contending that the PTFA was still effective in Virginia, Wiendieck relied upon Virginia Code § 55-225.10(C), which states: “If the dwelling unit is foreclosed upon and there is a tenant lawfully residing in the dwelling unit on the date of foreclosure, the tenant may remain in such dwelling unit as a tenant only pursuant to the Protecting Tenants at Foreclosure Act, P.L. No. 111-22, § 702 . . . provided the tenant remains in compliance with all of the terms and conditions of the lease agreement, including payment of rent [emphasis added].”
Wells Fargo argued that § 55-225.10(C) incorporates a now defunct PTFA, and Virginia law provides no protection under an expired statute. The court opined that while § 55-225.10(C) specifically references § 702 of the PTFA (the tenant protections), it failed to specifically reference § 704, the sunset provision. As a result, the court held that the PTFA was still effective in Virginia because § 55-225.10(C) incorporated the protections but not the expiration.
Notwithstanding ruling the PTFA was still effective, the court determined that Wiendieck did not qualify as a bona fide tenant. Since her lease expressly required no rental payment, the court held that Wiendieck could not state a claim for protection under § 55-225.10(C) because the PTFA mandates a lease payment that is not substantially below fair rental value. The court further opined that allowing Wiendieck to enforce her lifetime, rent-free lease would offend the balance Congress intended in protecting tenants who are victims of foreclosure, while also ensuring that a foreclosure purchaser would receive some return on its investment in the interim.
While this federal opinion in Wiendieck is not binding authority, it does present a possible argument that could be levied by counsel representing foreclosed tenants. Courts who are persuaded by the opinion may require PTFA notices to vacate and/or the honoring of a written lease term before awarding possession. Many servicers have continued to treat foreclosed tenants under PTFA standards regardless, so this case would have little or no impact in those instances. Wiendieck has noted her appeal with the U.S. Court of Appeals for the Fourth Circuit.
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