New legislation—S. 896, the “Helping Families Save
Their Homes Act of 2009,” includes provisions to protect tenants from eviction as a consequence of a foreclosure affecting the property being rented. For example, many families living in rental housing throughout the
United States were previously getting evicted without
any prior notice when the home was foreclosed upon.
Much of the time, the rental family had no idea the home
was in delinquency or subject to foreclosure until their
Under the new law, which went into effect in May
2009, tenants must receive 90-days notice prior to
being evicted when their rental home is foreclosed
upon. In addition, tenants must be allowed to stay in the
property through the end of their lease, with two excep-
• The new owner wants to occupy the property as a
• There is no lease (tenant lives month-to-month), or
Some experts believe that “mark-to-market” accounting
rules have forced banks to take steep write-downs on
performing assets such as commercial mortgage-backed
securities (CMBS), exacerbating the liquidity crisis. These
rules have been improperly forcing banks to report billions in losses due to temporary conditions, which have
made banks tighten their credit standards and reduce their
loan volume for real estate lending.
On April 2, 2009, the Financial Accounting Standards
Board (FASB) passed a proposal to relax current mark-to-market accounting rules by giving companies more
leeway when valuing assets, a step that could encourage
banks to trade their distressed assets more freely and
thereby encourage greater lending activity to stimulate
the commercial real estate industry. FASB will now allow
companies to use their judgment to a greater extent in
determining the “fair value” of their assets.
Despite FASB’s encouraging rule change, other new
accounting changes have created uncertainty and concern
amongst businesses, banks and real estate investors. On
June 12, 2009, FASB adopted FAS 166 and FAS 167, which
will take effect for most firms on January 1, 2010.
Under FAS 166, companies will be required to bring off-balance sheet assets such as CMBS onto their own balance
sheets, potentially forcing banks to raise billions of dollars
in new capital and further reducing the amount of lending
in an already dried up credit market. Specifically, this rule
change calls for the elimination of the concept of a “
qualified special purpose entity” (QSPE), which allowed banks
to securitize commercial real estate loans and to keep
these investments off their balance sheets.
According to the Journal of Accountancy, FAS 167 will
change “how a company determines when an entity that
is insufficiently capitalized or not controlled through
voting (or similar rights) should be consolidated. The
determination is based on, among other things, an
entity’s purpose and design, and a company’s ability to
direct the activities of the entity that most significantly
affects the entity’s economic performance.”
Both FAS 166 and FAS 167 accounting standards
could force costly changes for many banks and firms,
creating a significant setback to the revival of the CMBS
market as well as the revitalization of commercial real
RULES IMPACT BANKS
New Provisions Protect Tenants Who Rent
there is a lease but state law allows the lease to be
terminated at any time upon notice.
Notification must be provided by the “immediate successor in interest.” In some cases, this notification will
come from the bank (when they assume the home), and
in other cases, it may come from the new owner. A
number of states have existing laws protecting tenants.
This law will pre-empt existing state law, except where
the state law offers greater protection. The protections
of this law apply only to “bona fide” tenants, e.g., those
who have a contract; those whose lease was the result
of an arms-length transaction; and the rent for the property is not substantially less than the fair market rent.
Under any conditions, tenants may still be evicted if
they violate the lease terms. These provisions expire on
December 31, 2012. HUD recently issued a notice that
provides an overview of these tenant protection provisions and outlines the basic guidelines of the program.