Pub. 4 2013 Issue 3

www.wvbankers.org 18 West Virginia Banker O nce taken into a lender’s inventory, these “OREO” (Other Real Estate Owned) properties can pose challenges to lenders if they are not prepared. This article will provide some suggestions for lenders faced with managing OREO prop- erties post-foreclosure. Securing the Property Upon becoming the owner of an OREO property through foreclosure, a lender’s first consideration should be to secure possession of the property as quickly as possible for a host of reasons. Unfortu- nately, vacant properties can often become subject to vandalism or theft. Further, it is important to take possession as soon as possible to assess and take care of any maintenance issues that could cause the property to deteriorate (such as fixing a leaking roof or winterizing pipelines). Unfortunately, it is rare that a borrower turns possession of the property over to the bank voluntarily in broom-swept con- dition. For this reason, lenders often have to go through some extra legal steps to obtain possession of the property and prepare it for sale. Eviction of Hold-Over Occupants A Lender may be forced to delay obtain- ing possession of the OREO property if the property remains occupied. Lenders should not attempt to forcibly take posses- sion of a property and/or change the locks to a property where someone continues to reside and fails or refuses to voluntarily turn over possession of the property. In the event the prior owner remains in possession of the OREO property and will not voluntarily relinquish possession, a lender can initiate legal proceedings known as an unlawful detainer action 1 or ejectment. 2 The most common action used in West Virginia is an unlawful detainer action. Unlawful detainer actions normally can be completed on an expe- dited basis in Magistrate Court. Even if the action is contested by the occupant, the magistrate will set the matter for trial in short order, usually within 30 days. Then, assuming that the lender’s title to the OREO property is proper, an OREO property owner is typically granted an Order of Possession directing the occupant to vacate within a short time period. Dealing with Tenants of the Former Owners Special consideration needs to be given when dealing with tenants of the former owner. There are both State and Federal statutes which afford tenants of the former owner special protections. Specifically, the Federal Protecting Tenants at Foreclosure Act of 2009 (“PTFA”) and West Virginia Section 38-1-16 both provide certain rights to tenants remaining in foreclosed OREO properties. In a nut shell, PTFA, which went into effect on May 20, 2009 and was extend- ed through the end of 2014 by the 2010 Dodd-Frank Act, requires the purchaser at trustee’s sale to provide a tenant with at least a 90-day written notice to vacate prior to evicting the tenant. If the tenant has a “bona fide lease” (which is defined in the PTFC) which extends beyond 90 days, the tenant may get the benefit of the longer lease term. West Virginia Code Section 38-1-16 also requires that a lender allow a tenant 90 days written notice if an unexpired written lease is the source of the tenancy. The statute also provides a lesser period in cer- tain situations. However, given the 90 day requirement of the PTFA, it is advisable to take a more conservative approach and provide tenants 90 days notice prior to eviction in West Virginia to make sure that both statutes are complied with. Because special notices need to be given to tenants of the former owner, it is import- ant to assess whether tenants of the former owner reside in the property and to obtain a copy of the lease if possible, so you can determine what legal notices need to be provided. 1 W.Va. Code 55-3-1, et. seq. 2 W.Va. Code 55-4-1, et. seq. Practical Considerations for Dealing with OREO Properties Part II – Post-Sale Considerations By David Thomas and Michael Proctor In the Summer issue of the West Virginia Banker Magazine, we discussed certain factors that banks should consider before taking ownership of real estate collateral at a foreclosure sale.