It happens more often than people think: after years of living in a property, a notice is posted and the property is foreclosed. While the landlord has lost an investment, the tenant has lost much more – a home. In many cases, the landlord has pocketed thousands of dollars over the years without in turn paying his mortgage. When this happens, a new owner must honor the existing lease, subject to a few limitations. Sadly, this does not always happen.
What happens when the property is foreclosed?
This is a complex question that requires more analysis than can be done here, but in general, once a foreclosure is final, the new owner has a right to payment under the terms of the existing lease. A new owner may not evict you or simply “cancel” the existing lease. There are different specific rights, however, depending on the age of the building and which protections apply to you. Here is a brief explanation.
Buildings built before June 13, 1979 with two or more units
If this applies to you, then you are covered under full rent control and just cause eviction protections of the San Francisco Rent Ordinance. This means the new owner may not raise rents in excess of the standards that apply that year. Further, your landlord may only evict as provided by the “Just Evictions” provisions.
Buildings built before June 13, 1979 and just one unit
Provided you moved into the property prior to January 1, 1996, you have the same protections as those living in older multi-family units. If you moved in later, you still have protection under the just cause eviction provisions.
Newer buildings
Lastly, if you live in a newer building – one built after 1979 – you typically would not have rent ordinance protections. However, new changes in the law make the just cause evictions standards applicable to all San Francisco tenants. While there are times when a foreclosing bank could charge you more money for rent, this rarely happens. Once the property is sold to another owner, things get more complicated. If this happens to you, you should contact a tenant rights attorney to discuss your options before you are put in a difficult position. While foreclosures are usually due to economic issues, sometimes they are criminal. Rent skimming is becoming a big problem.
What is rent skimming?
Rent skimming is an insidious practice, whereby a person fails to properly apply rents to mortgages. Here is how it works. First, the landlord purchases an investment property by taking out a mortgage loan. He then, in turn, rents the property to others and receives rent. So far, so good. However, instead of applying those rents to the mortgage first, he pockets the money as pure profit or uses them to acquire more properties or higher value properties. This is illegal. Under California Code Sections 890 – 894, this practice is not permissible and may subject a landlord to criminal penalties, including up to $10,000 in fines and a year in jail for those who are guilty of repeat offenses.
If you are a tenant whose property is being foreclosed, you have rights. You may be the victim of a rent-skimming scheme, and you may only have a limited time to act if you want to protect yourself. Don’t rely on your landlord or the bank to protect your individual rights as a tenant. Contact the attorneys of Elke & Merchant LLP to discuss your rights today.