Forget foreclosure for a moment. In a “regular” sale of a rental property by the owner/landlord to a new buyer, the new owner takes the rental property “subject to” the existing lease, which means that both the new owner and the tenant are bound by the terms of the existing lease. Neither the new owner, nor the tenant may unilaterally cancel or terminate the lease (except in the very rare occassion when the lease contains a provision that terminates the lease upon sale of the rental property). Prior to 2009, foreclosure of a rental property “foreclosed” (i.e., extinguished) all interests in the rental property that were “junior” in priority to the lien being foreclosed by the lender, which meant that a foreclosure terminated the lease and the tenant had to vacate the rental property no matter how much time was still left on the lease. The Helping Families Save Their Homes Act of 2009, signed into law by President Obama on May 21, 2009, included a provision entitled Protecting Tenants at Foreclosure Act of 2009. The latter Act provides that the new owner of the rental property takes the rental property “subject to” the existing lease, which means both the new owner/landlord and the tenant are bound by the existing lease. Having said that, there are a few exceptions and the Act only applies to a “bona fide” lease. The full text of both Acts can be found at the following links.
Helping Families Save Their Homes Act of 2009
Protecting Tenants at Foreclosure Act of 2009 (scroll down to Section 701)
Keep in mind, however, that the Arizona Residential Landlord and Tenant Act still applies. Whether or not there has been a change of ownership of the rental property, the LL/T Act allows a tenant to give notice regarding various property defects and, if the defects are not remedied, the tenant may terminate and vacate the rental property.
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