The U.S. Court of Appeals for the Sixth Circuit recently held that, although the federal Protecting Tenants at Foreclosure Act (“PTFA”) does not provide a private right of action, violations of the PTFA may be used by tenants to establish the elements of state law causes of action.
A copy of the opinion is available at: http://www.ca6.uscourts.gov/opinions.pdf/14a0030p-06.pdf.
A bank foreclosed on a borrower, who rented the subject Kentucky property to tenants. The tenants alleged that although they had a valid lease - and supposedly informed the bank of same - the bank nevertheless evicted them from the home, prior to the expiration of the alleged lease.
The tenants filed suit against the bank, alleging wrongful foreclosure in that the bank did not honor their lease, in violation of the PTFA. The bank moved to dismiss the action, arguing that the PTFA does not provide a private right of action. The lower court agreed, and granted the bank's motion to dismiss. The tenants appealed.
As you may recall, the PTFA generally provides that immediate successors in interest to foreclosed residential property assume such interest subject to the rights of bona fide tenants. Pub. L. No. 111-22, Sec. 702, 123 Stat. 1632, 1661 (codified at 12 U.S.C. Sec. 5220 note (Supp. V. 2012)). Kentucky law generally provides that a foreclosure terminates the rights of tenants as to the subject property, and also provides for causes of action for wrongful eviction.
The Sixth Circuit began its analysis by examining whether the PTFA creates a private right of action. It had little difficulty in answering in the negative, finding that "neither the text [of the PTFA] nor the statutory structure indicate that Congress intended to provide a private right of action."
The Sixth Circuit next examined whether the lower court had erred in determining that the tenants' complaint stated claims based only on the PTFA - rather than claims arising out of state law. The Sixth Circuit scrutinized the pleadings, and found that the tenants' complaint alleged that they were "wrongfully evicted." In addition, the Sixth Circuit noted that on appeal, the tenants argued that the PTFA preempted Kentucky state law, which state law provides that a foreclosure terminates a tenant's lease.
The Sixth Circuit held that the "purpose of the PTFA could not be accomplished if it did not preempt state laws that set lower standards for successors in interest that the Act requires." For that reason, the Court determined that the provisions of Kentucky law at issue here were preempted.
Having determined that the PTFA preempted the relevant provisions of Kentucky law, the Sixth Circuit turned to whether the PTFA is available as a defensive measure only - that is, as a defense to state court eviction actions - or whether it may be used as a basis to establish a state law cause of action, as the tenants contended.
The Sixth Circuit again ruled in favor of the tenants, reasoning that "[i]n cases where successors in interest do not initiate judicial proceedings, tenants have no opportunity to raise the PTFA as a defense. Thus, they must be permitted to use available state law causes of action, such as wrongful eviction, to enforce the PTFA's protections."
Accordingly, the Sixth Circuit held that the facts alleged by the tenants supported a claim for wrongful eviction under Kentucky state law. The Sixth Circuit therefore reversed the holding of the lower court.
Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
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