TENANTS LEGAL CENTER
OF SAN DIEGO
Foreclosures
TENANTS
WHAT HAPPENS TO THE RENTAL AGREEMENT?
Your rights as tenants in a foreclosed property vary depending on the situation. Under a new law, your residential rental agreement/lease may now survive a foreclosure. There may be limited exceptions but these must be viewed on a case by case method. Long term commercial leases may survive the foreclosure depending on the terms of the lease and if it was entered into before the deed that was foreclosed on.
Under Federal Law, certain residential leases may remain valid even after a foreclosure. Federal law now protects residential leases entered into before "the notice of foreclosure".
As originally enacted by the first version of this Federal Law, the term "Notice of Foreclosure" was vague. It was important since that law protected leases entered prior to that date. At the Tenants Legal Center, we claimed the "foreclosure" notice was the latest NOTICE OF TRUSTEE SALE which would have protected more leases before that notice. The banks claimed it was the first NOTICE OF DEFAULT reducing the number of leases protected. Now, the Federal Law has been amended to clarify the situation for the benefit of the tenant. The "Notice of Foreclosure" is now clarified to mean when title actually passes from a foreclosure sale. The protections of the Federal Law, as amended and clarified, will include all leases entered into prior to title passing as potentially being covered under the law.
WHAT TO DO ABOUT PAYING RENT
When a mortgage goes into default, the landlord may still have the right to claim rent all the way up to a trustee sale (losing the property) That right is subject to landlord tenant laws. He/she may have to pay that money over to the lender while in default but that does not affect the tenant's obligation to pay rent, if any. When the trustee sale is imminent, it is important to seek legal advice on how to protect your rights before withholding rent. This is especially important in light of the recent Federal Law changes. Keep in mind that many landlords take action to try and save the property and prevent the trustee sale. Once the trustee sale occurs, tenants should no longer pay the former owner (ex landlord) since they no longer own the property. Under Federal Law, tenants may have to now pay rent to the new owner if the lease was transferred as per that law. This is a new situation created by Federal Law and very complex. There may be many ways to avoid paying that rent but it is not recommended to withhold rent to a new owner without advice and guidance.
WHAT TO DO IF YOU NEED MORE TIME TO MOVE
As a tenant in a foreclosed home, you may be allowed to remain through the lease term or you may be asked to move in as little as 60 or 90 days. In many cases you can gain additional time to relocate or perhaps you would like to try and buy the home for a reduced price before moving. For many tenants, this could be a golden opportunity.
We can help. We can stop the process, lawfully defending your rights and give you that valuable extra time you may need. Do not be intimidated by any paperwork regarding eviction. These matters can be handled using the banks eviction papers even if your name is not on them. Remember, this situation is not your fault. You are not to blame for being caught in the middle between the bank/lender and your landlord. Do not let the situation become any worse. Seek legal advice to protect your rights before considering moving out. Do not simply listen to the bank or new owner's advice. They are only interested in their "new" property and not you or your family.
TENANT'S RIGHTS AGAINST FORMER LANDLORD
Be sure to tell the former Landlord/owner that you expect the refund of your security deposit, less any rent you may still owe them. If you were forced out during a lease, you may have a valuable claim for the landlord's breach of that lease along with fraud if they intended to lose the property but concealed that from you when you signed the lease. You may be allowed to remain under that lease but you may still have claims against that former landlord.
CHECKING THE LANDLORDS CREDIT
With so many foreclosures, it may be a good idea to check the credit of landlords before renting. Some landlords who face foreclosure will rent the home to unsuspecting tenants collecting rent all the way to losing the home at a foreclosure sale. They collect rent but do not pay the mortgage since they are planning to let the home go. The problem is that the tenants do not know about the owner's plans and think they are leasing a secure home. These tenants become victims because they leased a home on the edge of foreclosure which will lead to their eviction, regardless of the lease. Tenants can actually research the risk of foreclosure before renting and moving in. You should check your local County Recorder's office to check on the status of a piece of property you wish to rent (or are already renting). Anyone can access public records in San Diego to see if there is a NOTICE OF DEFAULT (NOD) on the property. Once one of these is issued, the owner has a limited time to cure the default before the sale. Clearly, tenants who discover a NOD should understand that beginning to or continuing to rent that home carries the risk of being evicted by the lender after a foreclosure. Innocent tenants displaced by a foreclosure may make a claim against the former owner under certain conditions.
TENANT'S RIGHTS AFFECTED BY FORECLOSURE SALE
You have different rights occupying a home lost to a foreclosure depending if you come under the new Federal Law or not. If you do come under that law, the lease will be transferred to the new owner by operation of Federal Law (lease survives the foreclosure) Since you are subject to that lease, you may now be asked to pay the lease rent and be obligated to all the terms and conditions of that lease. Under some conditions, you may be asked to vacate at the end of the lease or with a 90 day notice under some conditions. If you do NOT qualify under that Federal Law, you will not be a tenant under a lease, nor a guest or even a licensee. The law considers you a trespasser and subject to a 60 day notice to quit but you may not need to pay any rent for that period.
As a tenant renting from a foreclosed landlord, your tenant status will, in most cases, be changed. In certain cases. if your lease was entered into before the foreclosed loan was created, the lease may survive the foreclosure under State (commercial tenancies) and Federal Law (residential tenancies) As a tenant, be cautious of paying any rent after a foreclosure since you may be paying a former owner who has no right to any rent or you may be paying someone claiming to be the new owner who is really not. Remember, do not guess in such matters, seek advice to protect your rights!
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California law for San Diego is applied in these pages. Such laws may or may not be applicable in other jurisdictions. The information provided herein is of a general nature and is not intended to be taken as specific legal advice. For legal advice in a particular situation, promptly consult with an appropriate attorney.