Tenants: Protection from Landlord Foreclosure

Friday, Sep 5, 2008

A California bill seeks to establish protections for renters whose landlords aren't staying current with their mortgage payments.  

Tenants of the reality show Big Brother are given the task of avoiding eviction, but at least they know it's a possibility. Real-world tenants, however, whose landlords skip out on the mortgage payments, often have no idea that they're about to be thrown out.

It's an extreme example of misplaced punishment: the landlord doesn't pay the mortgage, and the person who's renting pays the price. Unfortunately, renters are often the last to know that their landlord has fallen behind on his payments. If a landlord has a cash flow problem, it's unlikely that he'll inform his rent-paying tenants of their impending homelessness. Often, renters are in the dark until they see a foreclosure notice on the door.

California taking foreclosure action


The good news is that the California State Assembly recently approved a bill known as AB 2586, which specifically addresses tenants' rights in foreclosure situations. If AB 2586 is approved by the State Senate, renters will be protected with the following provisions:  

  • The clarification that an owner who acquires a rental property through foreclosure is, in the legal sense, a landlord. This forces the new owner to comply with existing regulations that apply to landlords. As an example, a new landlord is legally prohibited from forcing out a tenant by changing the locks or shutting off utilities. Without AB 2586, it's questionable whether these rules apply to new owners who acquire property through foreclosure. With AB 2586, there's no question that the new owners can't sidestep this and other landlord legislation.
  • A mandate that the new owner is jointly and severally liable for the renting party's security deposit. Existing law requires the landlord to give the security deposit back to the tenant, but this generally doesn't happen in foreclosure situations. By making the new owner liable, the legislation gives the tenant another means of getting the security deposit back. AB 2586 also prohibits the new owner from requiring the tenant to pay additional security deposits.
  • Enhanced tenant notification requirements to ensure that the renters are aware of a scheduled foreclosure sale.
  • A requirement that the utility company must provide 15 days notice to the resident if the service is scheduled to be disconnected. The tenants must be given the option to switch the service into their own names, without having to pay the past-due amounts.  
  • An increase to the length of time that long-term tenants are given to find new housing, from 30 days currently to 60.

If AB 2586 passes, the challenge will then be to get the word out to real estate investors, agents, landlords, tenants, and property managers. Unfortunately, there's no Big Brother camera documenting how rental property foreclosures are being handled-so it's up to California renters to know their rights.

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