Rights of Tenants in a Foreclosed Claremont Rental

A renter learns about a foreclosure in one of two ways. Either a notice is posted on the door, or the rent check comes back and someone new says the property has changed hands.

Both are unsettling, and both tend to produce the same wrong assumption: that the tenancy ended when the property sold. It generally did not. Federal and California law both include protections for tenants in foreclosed residential property, and knowing that they exist is the difference between an orderly transition and a panicked one.

This article describes the landscape in general terms. Tenancy law is detailed, it varies with the facts, and it changes. Verify current law with a tenant-rights attorney or a legal aid organization before acting on anything here.

The first thing to understand

A foreclosure changes the OWNER. It does not, by itself, remove a lawful occupant from the property.

Whoever takes title at or after a trustee's sale — the foreclosing lender, or a third-party buyer — steps into the position of owner and must follow the legal process that applies to removing an occupant. That process has requirements, and requirements take time.

Self-help is not among the options available to a new owner. Changing the locks, removing belongings, shutting off utilities or otherwise forcing an occupant out without going through the proper process is unlawful in California. If any of that happens, it is a matter for an attorney or a legal aid organization immediately.

Protections that apply to bona fide tenants

Federal law includes protections for bona fide tenants in foreclosed residential properties, and California law provides its own requirements for notice to tenants after a sale. Broadly, the framework distinguishes between occupants with a genuine, arm's-length tenancy and occupants who are the former owner or a member of the former owner's household.

Two general concepts recur. A tenant with a lease may in many circumstances be entitled to remain through the balance of the lease term, subject to defined exceptions. A tenant without a lease, or in the excepted circumstances, is entitled to a period of written notice before an action to recover possession may proceed.

The precise notice periods, the definition of a bona fide tenancy and the exceptions are set by statute and have been amended more than once. Do not rely on a number you read anywhere, including here. Verify current law.

What a tenant should do first

Five things, none of which requires a lawyer to begin, though the last one gets you to one for free.

Keep your paperwork. The lease, the rent receipts, the bank records, the text messages arranging the tenancy. A bona fide, arm's-length tenancy is something you may need to demonstrate, and documents are how it is demonstrated.

Keep paying rent, and keep proof. A foreclosure does not suspend the obligation to pay. If it is genuinely unclear who is entitled to receive the rent, get advice quickly rather than simply stopping payment — nonpayment creates a separate problem that is entirely avoidable.

Get the new owner's identity in writing. Ask for documentation before redirecting payments to anyone. Ownership changes on foreclosed property attract impostors.

Do not sign anything under pressure. Cash-for-keys offers are common and can be reasonable. They are also an agreement to give up rights you may not have valued correctly. Have someone review it.

Get free legal help. Legal aid organizations serve Los Angeles County tenants, and courts publish self-help resources. This is a situation where a short conversation with someone who knows the statutes is worth more than a week of reading.

The security deposit question

The deposit is one of the most common sources of loss, because it was held by the previous owner and the tenancy continues under a new one. Obligations regarding deposits on a transfer of ownership are addressed by statute. Document what you paid, in writing, and ask about it early rather than at move-out.

If you are the landlord facing this

An owner of rental property heading toward foreclosure has a duty to the people living in the building, and it is largely a duty of communication.

Tell your tenants what is happening. A tenant who learns from a posted notice is a tenant who has lost the ability to plan, and there is nothing to gain from that. If the property carries equity, selling before the sale date is usually a better outcome for everyone, tenants included, because it produces an orderly transaction rather than an auction.

Call a HUD-approved housing counselor first — that counseling is free — and get the reinstatement and payoff numbers from the servicer. The available alternatives are set out here, and several of them keep the tenancy intact.

NO ONE SHOULD PAY AN UPFRONT FEE FOR FORECLOSURE HELP, on either side of this.

If you are buying a property with tenants in place

Buy with your eyes open. An occupied property is not an empty one, and the timeline for gaining possession is a legal process with real duration and real cost. Treat the occupancy as part of the purchase, get counsel before you bid, and behave decently toward the people living there — they did not cause the default.

The wider picture starts at the foreclosures guide, and the mechanics of possession after a sale are covered in the article on what follows an auction.

Legal questions belong with an attorney and tax questions with a CPA. Anthony Grynchal has been licensed in California since November 2009.