Right of tenants during a foreclosure in California

7 Replies

Find the following from site

http://www.courts.ca.gov/1048.htm

The site looks legit. But my question is if the new owner has to honor the existing lease, doesn't that open the new owner to many unknowns, for example, the lease can be for the next 20 years with a nominal rent). 

Rights of Tenants During a Foreclosure

If there are tenants in the house that was foreclosed on, the new owner must honor the existing lease. BUT when the tenants have a month-to-month lease or the owner/landlord also lives in the home that is being foreclosed on, the new owner can evict the tenants or former owner/landlord. In these cases, the new owner may either (1) offer the existing tenants a new lease or rental agreement or (2) begin eviction proceedings. If the new owner chooses to evict existing tenants (other than the former owner), the new owner must give the tenants at least 90 days’ notice before starting eviction proceedings.

If the lease is for a term of one year or more you have to honor the terms of the lease, but the lease has to be a bona fide lease at market rate. If the rent is significantly below market you can get around the lease in eviction court, but you are at the mercy of the judge's discretion, which isn't always a good thing. There's no doubt that the Protecting Tenants in Foreclosure Act has not only complicated evictions, it's added an additional layer of risk in the purchase of property at auction.

To answer your question, yes it does open the purchaser up to unknowns because in many cases you won't know what rights the occupant will claim until after you've bought the property.

@Brian Burke   , thanks for clarifying. I'm curious what do you do to mitigate that risk?

Federal law says you have honor a lease of one year or Less (@Brian Burke  Typo?) and if it  is at the "market rate".  If the buyer is going to occupy it as their primary, then they must only allow 90 days, regardless of lease term.  Socialist, left coast laws may be different:-).

Ca is brutal with tenant rights.  You have to do your DD upfront or be prepared to offer big CFK dollars to get them out, start as low as $1500.  I'm familiar with firms that have paid as much as $30,000 in CFK dollars.  (High price point deals in CA)

@Matt Welch How do you go about the DD? I assume most of has 'do not disturb tenants' warnings. 

@Wayne Brooks  is right, I had a typo, the word "of" should be "such as" so the opening sentence should have said "If the lease is for a term such as one year or more..." (My bad!). 

The PTFA is detailed in Public Law 111-22 section 702.  The act doesn't define acceptable lengths of lease terms so it could be less than a year (such as six months) or one year or even more. Many publications do say "one year or other fixed term lease" but "one year" is merely an example not a requirement. Another requirement of a bona fide lease is that it must be arms-length and at market rate and terms. If it's outside of customary norms it'll be more heavily scrutinized; so if it's abnormal for tenants to have five year leases, or prepaid leases, it's more likely to be ruled invalid.

@Eric Z.  asks what to do to mitigate the risk...there isn't much you can do. You can knock on the door prior to the auction and ask the occupant if they are the owner or a tenant, and if they say they are a tenant ask about the term of their lease. This is of only marginal value, however, because as hard as this is to believe...people lie.  Owners know about the tenant protections so they claim to be tenants, and tenants claim to have longer leases than they actually do.  Now you are stuck with filing an unlawful detainer suit and forcing them to prove their claim in court.  Most of them have no proof...the ones that do will show it to you as soon as you serve them with a three day notice.  Yes, I meant three days...I start there because it motivates people to produce proof quickly if they have it, and if they dont you get your UD started sooner.  If they have proof of a lease, you then re-serve them with a 90-day notice.

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