Texas Foreclosure and the PTFA: Tenant Rights After Foreclosure of the Rental Property

When a Texas residential rental property goes through foreclosure, two competing principles collide: the buyer at the foreclosure sale generally takes free of the lease (because the lease was junior to the mortgage), but the federal Protecting Tenants at Foreclosure Act (PTFA) imposes significant protections on the buyer including a 90-day notice-to-vacate floor and lease-survival rights for bona fide tenants. In DFW, PTFA issues most commonly arise on small residential properties with federally backed mortgages going through Dallas County, Tarrant County, or Collin County foreclosure auctions. The procedural rules are uniform across the metro counties, but the practical experience varies with the foreclosing entity and the local servicing market. The PTFA was permanently re-enacted in 2018 after a temporary lapse and now applies to virtually every residential foreclosure in the country. This page lays out how the PTFA works, what counts as a bona fide lease, the 90-day notice procedure, the interaction with Texas eviction law, and the practical issues that come up in foreclosure-property eviction.

The pre-PTFA rule: lease junior to mortgage extinguished

Under traditional Texas (and general American) real estate law, a lease that was created after a mortgage is junior to the mortgage. When the mortgage is foreclosed, the foreclosure extinguishes junior interests, including the junior lease. The foreclosure-sale buyer takes the property free of the lease.

This rule produced harsh results for tenants, often blameless renters who paid their rent on time, when the landlord defaulted on the mortgage. The tenant could find themselves evicted with little notice through no fault of their own.

The PTFA changed this for residential properties.

The PTFA: what it does

The Protecting Tenants at Foreclosure Act, codified at 12 U.S.C. § 5220 note (and made permanent in 2018), provides that:

• The successor in interest of any residential property at a foreclosure sale must give a bona fide tenant at least 90 days’ written notice to vacate before initiating eviction.
• If the bona fide tenant has a fixed-term lease, the tenant has the right to occupy the property for the remainder of the lease term, unless the new owner intends to occupy the property as a primary residence (in which case the 90-day notice still applies).
• If the bona fide tenant has a month-to-month tenancy or no written lease, only the 90-day notice applies.
• The PTFA establishes a floor; state law that provides greater protection for tenants is preserved.

The PTFA applies to:

• Single-family residences.
• Multi-family properties.
• Manufactured homes.
• Properties subject to certain federal subsidies (additional protections may apply for HUD/Section 8 voucher holders).

What is a “bona fide” lease

The PTFA’s protections apply only to bona fide tenants. The statute defines a bona fide tenant as one whose lease meets the following criteria:

• The mortgagor or the child, spouse, or parent of the mortgagor under the contract is not the tenant.
• The lease was the result of an arms-length transaction.
• The lease requires the receipt of rent that is not substantially less than fair market rent for the property, or the rent is reduced or subsidized due to a federal, state, or local subsidy.

In other words, the tenant must be:

• Not a relative of the foreclosed-out owner.
• Renting through a normal business arrangement, not a sham.
• Paying market rent (with subsidy reductions OK).

Tenants who fail any of these criteria are not bona fide and lose the PTFA protections. They face the pre-PTFA rule that the foreclosure extinguishes the lease.

The most common challenges to bona fide status:

• The tenant is the foreclosed-out owner’s family member.
• The “lease” is a recent arrangement with no documented payment history.
• The rent is far below market (suggesting the lease was created to obstruct foreclosure rather than as a real rental).
• The lease was created shortly before foreclosure (suggesting bad faith).

The 90-day notice procedure

The PTFA requires the foreclosure-sale buyer to give the bona fide tenant at least 90 days’ written notice to vacate before initiating eviction.

The notice should:

• Be in writing.
• Identify the property.
• State the date of the foreclosure sale and the buyer’s status as the new owner.
• State a specific vacate date at least 90 days from the date of notice.
• Identify the buyer and provide contact information.

The 90-day floor applies regardless of any shorter notice provision in the lease or in Texas law. A buyer who serves a three-day Texas notice to vacate based on no-lease tenant-at-sufferance status has not satisfied the PTFA, and the resulting eviction case will be defective.

After the 90-day period expires, the buyer can proceed under the standard Texas Chapter 24 framework, file forcible detainer in JP court, trial within 10 to 21 days under SB 38, judgment, six-day waiting period, writ of possession.

Lease survival for fixed-term tenants

For bona fide tenants with a fixed-term lease, the PTFA goes beyond the 90-day notice floor and provides lease survival rights:

• The tenant has the right to occupy the property for the remainder of the lease term.
• The buyer takes subject to the lease for the remainder of the term.
• Standard lease provisions apply, including rent obligations to the new buyer-landlord.

Exception: if the new owner intends to occupy the property as a primary residence, the new owner can terminate the lease early, but must still give the 90-day notice. The “primary residence” exception is narrow and applies only when the new owner actually plans to live in the property, not when the new owner is buying it as an investment.

For month-to-month tenants and tenants without written leases, only the 90-day notice applies. There is no equivalent “remainder of term” protection because there is no fixed term.

How the PTFA interacts with Texas state law

The PTFA establishes federal floors. Texas state law that provides greater tenant protection is preserved. In practice:

• The 90-day notice is greater than the Texas post-foreclosure notice to a tenant, which is 30 days under § 24.005. The 90 days controls.
• Texas’s basic eviction procedure (Chapter 24 forcible detainer in JP court) applies after the PTFA notice expires.
• Texas-specific protections (SCRA, VAWA via § 92.0161/.0162, retaliation under § 92.331) apply normally.
• Texas’s deposit framework (§§ 92.103, 92.105, 92.109) applies, but the deposit obligation may follow the foreclosure-sale buyer, depending on whether the seller-landlord transferred or accounted for the deposit before foreclosure.
• CARES Act and HUD/Section 8 protections apply where applicable. CARES Act covered properties may require 30-day notice (which is well within the PTFA’s 90-day floor); HUD/Section 8 properties have additional federal procedural requirements.

Common foreclosure-property issues

• The deposit problem. The foreclosed-out landlord may have pocketed the security deposit before foreclosure. The new owner-buyer has no obligation to refund a deposit it never received and never assumed. The tenant’s claim is against the prior landlord, not the new owner. But § 92.105 may impose liability if the new owner accepts assignment of the lease or otherwise takes responsibility for the deposit.
• The unknown lease problem. The foreclosure-sale buyer may not know of the lease’s existence until after closing. This is more common in foreclosure than in voluntary sale because the buyer often has no way to verify occupancy before bidding. The PTFA still applies; the buyer takes subject to bona fide tenancies, even ones discovered after closing.
• The fake lease problem. The foreclosed-out owner sometimes creates a fake lease to slow down post-foreclosure eviction. The fake lease typically fails the bona fide test (family relationship, no arms-length transaction, no fair market rent, recent creation). Buyers can challenge the bona fide status and proceed without the PTFA’s protections.
• The vacant-property dispute. The buyer claims the property is vacant; later, an occupant emerges claiming a lease. The dispute typically becomes a documentation contest about who is actually entitled to be in the property.
• The tenant-paying-rent issue. Should the tenant pay rent to the foreclosed-out owner or to the new buyer? Typically, rent is paid to the new buyer once the buyer notifies the tenant of the change. Rent paid to the wrong party is potentially recoverable from that party but may not extinguish the tenant’s obligation to the new owner.

Best practices for foreclosure-sale buyers

Before bidding (or shortly after sale):

• Inspect the property to identify any occupants.
• Investigate occupancy history through the foreclosed-out lender’s records.
• Run a title search to identify recorded leases (uncommon for residential).

After closing:

• Promptly notify any occupants of the change in ownership.
• Determine each occupant’s status, bona fide tenant, family member, squatter, or some other category.
• Begin the PTFA 90-day notice for bona fide tenants.
• Document all communications.
• Consider negotiating cash-for-keys arrangements with cooperative tenants. These are common and produce faster occupancy than waiting out the 90-day notice.

For uncooperative or fraudulent occupants:

• Verify the bona fide status carefully before treating the occupant as PTFA-protected.
• Pursue eviction quickly under whatever procedure applies (PTFA-compliant if bona fide, standard Texas eviction if not).
• Document the bona fide-status analysis carefully in case of later challenge.