What is a Bona Fide Lease?

In essence, a “bona fide lease” is designed to protect a tenant from a foreclosed residential property.


Lots of people in the world like to invest in real estate by buying properties and renting them out. Because many people do not have cash on hand, they usually have to take out a mortgage on a property then rent the property out. This helps the mortgagee pay their mortgage with the money that is coming from the renter. This method does not always work out because the mortgagee did not do their math correctly, or unforeseen expenses came up. The home is eventually foreclosed on and the mortgagee loses the house.


Does this mean that the renter has to move out because the mortgagee did not do their finances right?


No. In 2009, the “Protecting Tenants at Foreclosure Act” was passed and this provides protection to residential tenants that have signed a “bona fide lease.”


If the tenant had a “bona fide lease in place” before the foreclosure notice then the tenant has the right to occupy the property until the end of the lease terms. UNLESS the new owner wishes to occupy the residence as a primary living address, then the tenant is entitled to a 90-day notice to vacate the premise.


A “bona fide lease” must also meet these requirements:


The tenant is not the mortgagor or the child, spouse, or parent of the mortgagor.


The lease is an arms-length transaction.
The rent cannot be substantially less than fair market value unless it is subsidized by government subsidy.