Chapter XI: Landlord Issues


Section E: Foreclosures/Forfeitures of Property

1. Foreclosure/Forfeiture of Land Contract

Forfeiture of a land contract occurs when the land contract buyer (the HCV existing landlord) defaults on the land contract, usually because they did not make payments. The land contract seller has the right under the land contract agreement to go to court and have his property restored. Until the court issues a Writ of Restitution, the land contract buyer is entitled to receive HAP payments. When the HA becomes aware of a land contract forfeiture situation affecting an assisted unit, the HA must:

  1. Obtain a copy of the Judgment of Forfeiture and forward it to the assigned RS/RM, who will forward the information to MSHDA’s Office of Legal Affairs;
  2. Obtain a copy of the Writ of Restitution and forward it to the assigned RS/RM, who will forward the information to MSHDA’s legal affairs;
  3. Determine whether or not the land contract seller desires to take an assignment of the HAP contract, enter into a new HAP contract, or terminate the current contract;
  4. When the court reaches a decision, the HA advises the RM and Legal Affairs;
  5. Legal Affairs issues a memo to the appropriate RM and HA advising whether the documentation is in order and the HA can proceed with an Assignment of HAP Contract, execute a new HAP contract, or terminate the current HAP contract;
  6. If the land contract seller does not wish to take an assignment of the HAP contract, the HA must inform the tenant immediately via certified mail that he/she will be required to move in order to continue to receive assistance. The tenant has 60 days in which to find an acceptable unit and move. The current HAP contract must be terminated when the tenant relocates.
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2. Foreclosures of Mortgage
  1. If a tenant contacts a housing agent (HA) because he or she "has heard" or "believes" the property is being foreclosed upon, the HA should:
    1. Ask the tenant to provide any documentation that he or she has or may obtain from the landlord. Key documents to obtain include (referred to hereafter as “Key Documents”):
      1. Mortgage;
      2. Published Notice of Sale;
      3. Sheriff’s Deed or Deed-in-Lieu of Foreclosure (if available and as applicable);
      4. Notice of Default (this would be given to tenants if there is an assignment of rents);
      5. Court order (if applicable – rarely will be); and
      6. Any other correspondence or documents provided by the foreclosing mortgagee.
    2. Promptly notify the applicable resource specialist (RS) of the potential foreclosure and forward all such documentation to the RS. The compliance enforcement coordinator (CEC) will assist with obtaining and reviewing Key Documents upon request. The HA should also contact the planning and development office (or other similar office) within the local units of government to inquire as to whether the unit has been or will be assisted under the Neighborhood Stabilization Program (NSP).
    3. If no documentation can be obtained, the HAP payments should continue to be made to the landlord and the tenant should be instructed to continue to make rent payments to the landlord.
    4. If documentation is provided, pending review by the RS and Legal Affairs (see Section D below), the HAP payments should continue to be made to the landlord and the tenant should be instructed to continue to make rent payments to the landlord.
    5. The HA should also inquire at this time as to whether the tenant desires to remain in the unit throughout the foreclosure process.
  2. If a foreclosing mortgagee contacts the HA advising that a foreclosure proceeding has been initiated and/or a notice of default recorded that the mortgagee believes triggers an assignment of rents, the HA should:
    1. Ask the mortgagee to provide all documentation relating to the proceeding (i.e., as many of the Key Documents as are applicable; if an assignment of rents is involved, be sure to obtain the notice of default, if a foreclosure proceeding has been initiated, be sure to get the published notice of sale and, if applicable, the sheriff’s deed). The HA should also contact the planning and development office (or other similar office) within the local units of government to inquire as to whether the unit has been or will be assisted under the NSP.
    2. Promptly notify the RS of the proceedings and forward all such documentation to the RS.
    3. If no documentation can be obtained, the HAP payments should continue to be made to the landlord and the tenant should be instructed to continue to make rent payments to the landlord.
    4. If documentation is provided, pending review by the RS and Legal Affairs, the HAP payments should continue to be made to the landlord and the tenant should be instructed to continue to make rent payments to the landlord.
    5. The HA should also inquire at this time as to whether the tenant desires to remain in the unit throughout the foreclosure process.
  3. If MSHDA or the HA becomes aware of the foreclosure in its normal course of business, the discovering party (CEC, RS, RM, HA, etc.) should notify the RS and the HA, as applicable, and the HA should:
    1. Immediately notify the CEC (if the CEC was not the discovering party).
    2. The CEC and the HA should review available Key Documents to determine if full title has passed to the foreclosing mortgagee (i.e., the redemption period has expired or a deed-in-lieu was given by the landlord). If it is determined that full title has passed to the foreclosing mortgagee, the RS and CEC should proceed in the manner described in Section D.II.e. below.
    3. If the documentation is incomplete or full title to the property does not appear to have yet passed to the foreclosing mortgagee, the HA should contact the tenant and the mortgagee to obtain the Key Documents to the extent applicable. The HA should also contact the planning and development office (or other similar office) within the local units of government to inquire as to whether the unit has been or will be assisted under the NSP.
    4. If no documentation can be obtained, the HAP payments should continue to be made to the landlord and the tenant should be instructed to continue to make rent payments to the landlord.
    5. If documentation is provided, pending review by the RS and Legal Affairs, the HAP payments should continue to be made to the landlord and the tenant should be instructed to continue to make rent payments to the landlord.
    6. The HA should also inquire at this time as to whether the tenant desires to remain in the unit throughout the foreclosure process.
  4. Upon receipt of the applicable Key Documents, the RS and Legal Affairs will review the same and determine if a foreclosure proceeding has in fact been initiated or an effective assignment of rents triggered.
    1. Upon notice from the HA of a possible foreclosure, the RS will coordinate with the HA and, to the extent necessary, the CEC in obtaining the necessary documentation. As discussed in Sections A.-C. above, if no such documentation is provided, HAP payments should continue to be made to the landlord and the tenant should be instructed to continue to make rent payments to the landlord.
    2. All documentation accumulated by the RS will be forwarded to Legal Affairs for analysis.
      1. If Legal Affairs determines that the property is not being foreclosed upon and no assignment of rents has been triggered (or, if a notice of default has been recorded, it is ineffective), Legal Affairs will inform the RS of the same and the HAP payments should continue to be made to the landlord and the tenant should be instructed to continue to make rent payments to the landlord.
      2. If Legal Affairs determines that the property is being foreclosed upon, but no assignment of rents has been triggered (or, if a notice of default has been recorded, it is ineffective), Legal Affairs will inform the RS of the same and the RS should:
        1. If the tenant desires to stay in the unit:
          1. Continue the HAP payments to the landlord and instruct the tenant to continue to make rent payments to the landlord.
          2. Inform the HA, the tenant and the foreclosing mortgagee through delivery of a Tenant and Landlord/Owner Information on Forclosures form (MSHDA 411b) that the foreclosing mortgagee must contact MSHDA and enter an assignment of the HAP contract prior to the expiration of the redemption period or delivery of a deed-in-lieu of foreclosure. The MSHDA Form 411b will further provide that, in the event the foreclosing mortgagee fails to enter an assignment of the HAP contract using the Assignment of HAP Contract and Lease (Foreclosure) form (MSHDA 411a), such assignment will nevertheless be effective by operation of law (the Protecting Tenants at Foreclosure Act) and payments will be handled as follows: (i) the tenant’s portion will be paid to escrow and (ii) a hold will be placed on the HAP payment by MSHDA. In the event there is NSP assistance to the unit, all or a portion of the HAP may be used to pay for utilities that are the owner’s responsibility or for other purposes authorized by HUD.
          3. If the foreclosing mortgagee (or, more likely, its successor in interest) cannot be identified, rejects payments, fails to maintain the property in accordance with HQS or otherwise materially breaches program requirements, MSHDA should advise the tenant of the same and should refer the tenant to the local Legal Aid Office. If the new owner cannot be identified, continues to reject payments or if the violation of program requirements is not cured within a reasonable amount of time in the opinion of MSHDA, a MSHDA Form 95 will be issued and the tenant will be issued voucher to move.
        2. If the tenant desires to move, terminate the HAP contract and issue the tenant a voucher to move.
      3. If Legal Affairs determines that the property is not being foreclosed upon, but a valid and effective assignment of rents has been triggered (and proper notice given to tenants), Legal Affairs will inform the RS of the same and the RS should:
        1. If the tenant desires to stay in the unit:
          1. Contact the HA to obtain the paperwork necessary to redirect payments to the mortgagee and upon completion, commence directing the HAP payments to the mortgagee and instruct the tenant to direct rent payments to the mortgagee.
          2. Inform the HA, the tenant and the mortgagee that, if at any time in the future the mortgagee commences foreclosure proceedings, pursuant to the Protecting Tenants at Foreclosure Act, the HAP contract will be automatically assigned to the foreclosing mortgagee and MSHDA will require the foreclosing mortgagee to memorialize such assignment through an assignment of the HAP contract. In this circumstance, this should be an informal notification (oral, e-mail, etc.), but no MSHDA Form 411a should be issued until such time as a foreclosure proceeding is initiated.
        2. If the tenant desires to move, terminate the HAP contract and issue the tenant a voucher to move.
      4. If Legal Affairs determines that the property is being foreclosed upon and a valid and effective assignment of leases and rents has been triggered (and proper notice given to tenants), Legal Affairs will inform the RS of the same and the RS should:
        1. If the tenant desires to stay in the unit:
          1. Contact the HA to obtain the paperwork necessary to redirect payments to the mortgagee and upon completion, commence directing the HAP payments to the mortgagee and instruct the tenant to direct rent payments to the mortgagee.
          2. Inform the HA, the tenant and the foreclosing mortgagee through delivery of a MSHDA Form 411b that the foreclosing mortgagee must contact MSHDA and enter an assignment of the HAP contract prior to the expiration of the redemption period or delivery of a deed-in-lieu of foreclosure. The MSHDA Form 411b will further provide that, in the event the foreclosing mortgagee fails to enter an assignment of the HAP contract, such assignment will nevertheless be effective by operation of law (the Protecting Tenants at Foreclosure Act).
          3. If the foreclosing mortgagee fails to maintain the property in accordance with HQS or otherwise materially breaches program requirements, MSHDA should advise the tenant of the same and should refer the tenant to the local Legal Aid Office. If the violation of program requirements is not cured within a reasonable amount of time in the opinion of MSHDA, a MSHDA Form 95 will be issued and the tenant will be issued voucher to move.
        2. If the tenant desires to move, terminate the HAP contract and issue the tenant a voucher to move.
      5. If the RS and CEC determine that the property has been foreclosed upon and the redemption period has expired, or full title has otherwise passed to the mortgagee, the RS and the CEC should:
        1. Terminate the HAP contract with the prior landlord immediately.
        2. Issue overpayment notices (if applicable).
        3. If the tenant desires to stay in the unit:
          1. Inform the HA, the tenant and the new owner that a HAP contract must be entered between MSHDA and the new owner.
          2. If the new owner cannot be identified or fails to enter a HAP contract, the CEC should contact Legal Affairs and the CEC and Legal Affairs should work together to determine whether the Protecting Tenants at Foreclosure Act applies to the tenant:
            1. If the Protecting Tenants at Foreclosure Act is applicable:
              1. The assignment of HAP contract (via the MSHDA 411a) will nevertheless be effective by operation of law and the tenant should be advised to make payments into escrow and a hold should be placed on HAP payments by MSHDA. In the event there is NSP assistance to the unit, all or a portion of the HAP may be used to pay for utilities that are the owner’s responsibility or for other purposes authorized by HUD.
              2. If the new owner cannot be identified, rejects payments, fails to maintain the property in accordance with HQS or otherwise materially breaches program requirements, MSHDA should advise the tenant of the same and should refer the tenant to the local Legal Aid Office. If the new owner cannot be identified, continues to reject payments or if the violation of program requirements is not cured within a reasonable amount of time in the opinion of MSHDA, a MSHDA Form 95 will be issued and the tenant will be issued voucher to move.
            2. If the Protecting Tenants at Foreclosure Act is no longer applicable (i.e., the lease term has expired and/or the new owner has provided 90 days notice to vacate to the tenant), the tenant should be advised of the same and the tenant should be issued a voucher to move and the tenant will be required to move in order to continue assistance.
        4. If the tenant desires to move, the tenant should be issued a voucher to move.

Note: This law changes to Section 2 of the PFTA. The law sunsets on 12/31/12.

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