Published on: October 17, 2011
Just about a month ago, the Supreme Judicial Court interpreted the newly enacted MGL 186A, and rendered a decision in the case of Federal National Mortgage Association (“Fannie Mae”) v. Nunez, in which the Court determined that any action by the foreclosing owner in furtherance of an eviction against a tenant was sufficient to trigger the Act. MGL 186A essentially prohibits certain owners from evicting a tenant unless there is just cause.
The bad news: MGL c.186A provides tenants with further protections from certain post foreclosure owners.
Prior to the enactment of c.186A, the Federal Protecting Tenants at Foreclosure Act (“PTFA”) provided foreclosing owners with various time restrictions and notices, but otherwise permitted owners to evict without cause. Now, certain institutional lenders, Fannie Mae, and Freddie Mac, are further restrained in Massachusetts by MGL 186A.
MGL 186A provides in relevant part that “Notwithstanding any general or special law to the contrary, a foreclosing owner shall not evict a tenant except (emphasis added) for just cause or unless a binding purchase and sale agreement has been executed for a bona fide third party to purchase the housing accommodation from a foreclosing owner.”In other words, the foreclosing owner must have a justifiable reason to evict an otherwise paying and compliant tenant from rental property. Just cause includes: non-payment of rent, disturbances, illegal conduct, damage to the apartment, failure to execute a renewal lease, or failure to permit access to the apartment for purposes of repair.
Furthermore, the foreclosing owner is required to, within 30 days of the foreclosure, “post in a prominent location in the building in which the rental housing unit is located a written notice stating the names, addresses, telephone numbers and telephone contact information of the foreclosing owner, the building manager or other representative of the foreclosing owner responsible for the management of such building and stating the address to which rent and use and occupancy charges shall be sent.” If the foreclosing owner fails to post notice, it provides grounds for dismissal of the eviction action.
The good news: certain “foreclosing owners” are defined as: entities that held a mortgage prior to foreclosure of a rental property, an institutional mortgagee that owns or services 3 or more rental properties and purchased the property within 3 years of the foreclosure deed, Fannie Mae, and the Federal Home Loan Mortgage Corporation (“Freddie Mac”). If you are just an investor, MGL 186A does not apply to you, and only PTFA governs your eviction (along with various other state statutes related to Landlord Tenant Law).
As is often the case, Massachusetts legislature provided just enough guidance in MGL c.186A to permit the courts to discern for themselves “the details”. Specifically, legislature included an emergency preamble with 186A, which made the act effective immediately, on August 7, 2010, rather than ninety (90) days later (the period ordinarily required by the Massachusetts Constitution). Fannie Mae argued that this established an unfair retroactive application; however, the Supreme Judicial Court creatively interpreted the word “action” within the act to effectively handcuff a foreclosing owner that already commenced the eviction process against a tenant. The court defined “action” as any act or conduct, not necessarily a legal action, in furtherance of the final result – possession of the subject premises. In other words, if a foreclosing lender commenced an eviction action, litigated a full trial, and obtained judgment and an execution for possession prior to August 7, 2010 (the effective date of the Act), and was only left with the final process of levying on the execution and having a constable or sheriff physically remove the tenant from the apartment (that would be scheduled after August 7, 2010), the levy constituted “an action” that placed the foreclosing owner within the statute’s grip.
Conclusion: If you are an institutional lender with an interest in 3 or more rental properties, Fannie Mae, or Freddie Mac, beware that in Massachusetts you may only evict a tenant for just cause.
Food for thought: In defense of our branches of government, legislature and the courts are looking to the Commonwealth’s best interests…
The legislative history of the Act provides that it is intended to address the problem of institutional lenders evicting otherwise good tenants for no reason other than to increase the marketability of the property. Vacant homes sell easier than occupied homes[i] . The Court in Fannie Mae v. Nunez stated that a “foreclosing owner” (as defined in the statute) does not own a home to live in it, but rather as an asset to be sold, and perhaps rented until it can be sold. Even if there were a modest reduction in the value of a real estate asset arising from a limitation on a foreclosing owner’s ability to evict tenants, the concern that empty, foreclosed homes and apartments are scarring neighborhoods and lowering property values, and there are numerous former tenants finding themselves homeless and straining State and local finances, greatly outweighs a foreclosing owner’s bottom line.
[i] The Court in Fannie Mae v. Nunez cited New York Times, April 13, 1997, as the authority for this premise…