Bona Fide Tenancy Under the PTFA: Three Requirements and Protections

A bona fide tenancy under the PTFA is a rental arrangement that meets three federal tests: the tenant is not the borrower or the borrower’s child, spouse, or parent; the lease was the product of an arms-length transaction; and the rent is not substantially less than fair market rent, unless a government subsidy accounts for the difference. Tenants who satisfy all three are entitled to stay through the end of their lease after a foreclosure, or receive at least 90 days’ written notice before being required to leave. The protections apply to foreclosures on any residential property, whether the sale is court-ordered or conducted under the terms of a mortgage or deed of trust.¹

The Three Requirements

The statute is specific. A lease or tenancy is bona fide only if all three of the following are true:²

The tenant is not the mortgagor, and is not the mortgagor’s child, spouse, or parent.
The lease or tenancy was the result of an arms-length transaction.
The lease or tenancy requires rent that is not substantially less than fair market rent for the property, or the rent is reduced or subsidized because of a federal, state, or local subsidy.

Fail any one and the PTFA’s protections don’t apply. The tenant is the one who has to be able to show the arrangement is legitimate, so each requirement is worth understanding on its own.

Who the Relationship Rule Excludes

The most common way people get disqualified is by being too close to the borrower. If you are the person who took out the mortgage that went into default, you cannot claim PTFA protection by relabeling yourself as a tenant. The statute also excludes the borrower’s child, spouse, or parent, even if those relatives signed a real lease and paid rent every month. The law treats those arrangements as presumptively a workaround.

The exclusion list stops there. Siblings, in-laws, cousins, grandparents, and other relatives are not named. A borrower’s sibling renting through a genuine lease could still qualify, provided the other two requirements are also met. A family deal that looks like a favor rather than a normal rental may still fail on the arms-length test, so passing the relationship rule is not by itself enough when the parties know each other.

What Arms-Length Means

An arms-length transaction is one where each side acted in its own self-interest, without a pre-existing relationship skewing the terms. The situation the requirement is meant to catch is a homeowner facing foreclosure who “rents” the property to a friend for a token sum and keeps living there. A lease exists on paper, but the deal was never independent.

Circumstances that draw scrutiny include a lease signed shortly before or during foreclosure proceedings, terms that are unusually favorable to the tenant, and evidence of a prior personal or business relationship between the landlord and tenant. None of these is automatically disqualifying, but any of them invites a closer look. If you rented from a stranger through a normal process and your lease terms are comparable to other rentals nearby, you almost certainly pass. If anything about the arrangement is unusual, be ready to explain it.

The Rent Test

Your rent cannot be “substantially less” than fair market rent for comparable properties.² The statute does not set a specific percentage, and no court has drawn a bright line. The determination is fact-specific: rent that is 10 percent below comparable properties is likely fine; paying a quarter of what similar homes go for is likely not.

HUD publishes Fair Market Rent figures each year for every metropolitan area and county, and those numbers are what most parties look to as a benchmark. You can look up the figure for your area on HUD’s website to see where your rent falls.³

There is one important carve-out. If a federal, state, or local housing subsidy explains why your rent is below market, the reduced payment does not disqualify you. A Section 8 Housing Choice Voucher tenant paying a below-market share is still bona fide because the subsidy fills the gap.²⁴⁵

When the Lease Must Have Been Signed

A bona fide lease has to be in place before the “notice of foreclosure.” Under the Dodd-Frank amendment, that phrase means the date complete title transfers to the new owner, whether by court order or under the terms of the mortgage or deed of trust.¹

Your lease does not need to predate the filing of the foreclosure lawsuit or the recording of a notice of default. It needs to exist before title actually changes hands at the sale. A lease signed after proceedings began but before the sale closed can still qualify. A lease signed that late will draw hard scrutiny under the arms-length requirement, though, because it looks like an attempt to delay eviction.

What Bona Fide Status Gets You

Passing all three tests gives you two layers of protection, and which one applies depends on what the new owner plans to do with the property.

Your Lease Continues

If the new owner does not intend to occupy the property as a primary residence, your lease survives the foreclosure. The new owner steps into the former landlord’s shoes and must honor the remaining term, including the rent amount and other material terms.² An investor who buys a foreclosed rental at auction cannot clear the existing tenants and start over.

The Owner-Occupancy Exception

If the new owner will live in the property as their primary residence, they can terminate the lease early, but only after at least 90 days’ written notice to vacate.⁴ The 90-day clock starts when you actually receive the notice. Even with two years left on the lease, a buyer who intends to move in can end it with proper notice.

Month-to-Month and No-Written-Lease Tenants

If you have no written lease, or your tenancy is terminable at will under state law, the new owner can require you to leave. You still get 90 days’ notice. That is the PTFA’s floor: no bona fide tenant can be forced out with less than 90 days’ written warning.²

Proving You Qualify

When the bank or new owner shows up, the conversation turns to documentation. The most important document is your signed lease, showing start date, end date, monthly rent, and the names of the parties. If you never had a written lease, gather what you can to show the arrangement existed: text messages or emails with the former landlord about rent, utility bills in your name at the property, or the rental listing you responded to.

Financial proof of rent payment is nearly as important as the lease. Bank statements, canceled checks, or money order receipts showing regular payments matching the lease amount all help. Six months of payment history makes a strong case. If you paid cash without receipts, bank withdrawal records showing consistent amounts on consistent dates can partly fill the gap. Maintenance requests, landlord correspondence, and security deposit records round out the picture of a normal rental relationship.

State Law Can Give You More

The PTFA sets a federal floor, not a ceiling. It does not override state or local laws that give tenants longer notice or additional protections after foreclosure.⁶ If your state requires 120 days’ notice, you get 120 days. If local law lets you finish out your lease regardless of the new owner’s plans to occupy, that stronger rule controls. Check your state and local tenant protection laws in addition to the federal rule, or ask a local legal aid office to check for you.

How the PTFA Is Actually Enforced

One boundary is worth knowing before you rely on the law. Courts have generally treated the PTFA as a defense you raise in an eviction case, not as a basis for filing your own lawsuit for damages against a new owner who ignores it. If a new owner tries to evict without the required 90-day notice or without honoring your lease, the place to assert your PTFA rights is inside that eviction proceeding.

You can also report violations to the federal regulator of the financial institution involved, or to your state attorney general’s office. Those channels don’t compensate you directly, but they can create pressure on repeat offenders. If you’re facing an eviction from a foreclosed property, a local legal aid organization or housing counselor can often represent you at no cost.

1
Federal Register. Protecting Tenants at Foreclosure Act: Guidance on Notification Responsibilities Under the Act
2
Office of the Law Revision Counsel. 12 USC 5220 – Assistance to Homeowners
3
HUD User. Calculation of HUD Fair Market Rents
4
Office of the Comptroller of the Currency. Comptrollers Handbook – Protecting Tenants at Foreclosure Act
5
U.S. Department of Housing and Urban Development. Housing Assistance Payments (HAP) Contract
6
Federal Deposit Insurance Corporation. V-16 Protecting Tenants at Foreclosure Act of 2009