California Tenant Rights in Foreclosure

SUMMARY OF CALIFORNIA LAW COVERING TENANTS OF PROPERTY IN FORECLOSURE

New State Laws

One potential problem tenants face after a foreclosure is shutting off of the utilities, due to the defaulting landlord getting behind on utility payments and the foreclosing bank is unlikely to pay those back bills. Tenants have a couple of options in such cases: First, the state Public Utilities Commission requires utility companies to give tenants the right to assume the utilities in their own name, without having to pay any of the back bills owned by the landlord. Rent-controlled tenants would then be able to get a decrease in rent from the Rent Board to compensate for now having to pay the utilities themselves.

Effective January 1, 2010, the California Public Utilities Code was amended to provide that public utilities (electricity, water, heat and/or gas) must give notice in writing to tenants in single-family homes that their landlord is in arrears with payments before turning off services to the tenants, in situations in which landlords are paying utilities on behalf of tenants. Notices must be provided in numerous languages. The law further provides that tenants who make a payment or payments to a public utility when their landlord has failed to do so may deduct these payments from their rent. Previously, this law applied only to tenants in multi-family dwellings. (H.R. 120, 2009-2010 Reg. Sess. (Cal. 2009), to be codified as Cal. Pub. Util. Code § 777.1 (2010).)

New Local Laws

Local laws have been enacted to protect tenants in foreclosure. Such laws cover issues ranging from notice requirements, utility rights, relocation assistance, to “just cause” statutes for terminating a lease. Generally, under a just cause statute, foreclosure isn’t deemed just cause to terminate a lease. Some areas, such as Los Angeles, require relocation payments to uprooted tenants.

Approximately 16 cities in California have passed or introduced laws preventing banks from evicting tenants living in foreclosed properties without “just cause,” such as where the tenant fails to pay rent or the owner wishes to move in to the property. As of this writing, sixteen cities in California have just cause for eviction ordinances: Berkeley, Beverly Hills, East Palo Alto, Glendale, Hayward, Los Angeles, Maywood, Oakland, Palm Springs, Richmond, Ridgecrest, San Diego, San Francisco, Santa Monica, Thousand Oaks, and West Hollywood.

San Francisco

On February 25, 2009, the Department of Building Inspection for the City of San Francisco signed a declaration to protect residents of master-metered multiunit residential buildings in the event of foreclosure. The declaration provides that utilities to these tenants may not be turned off, regardless of whether their landlord has paid the utility bills.

On March 16, 2010, the Board of Supervisors of the City of San Francisco enacted an ordinance extending “just cause” protections to tenants in properties not otherwise subject to eviction protections when those properties are foreclosed upon. (San Francisco Admin. Code §§ 37.2, 37.9D (2010).)

Los Angeles

The Los Angeles City Council voted to extend the ban on banks, and other lending institutions, from evicting a tenant in a foreclosed property (even a single family residence) through December 31, 2011. A tenant residing in the City of Los Angeles who has paid rent in full and on time cannot be evicted by a bank without "just cause."

Los Angeles Rent Controlled Units.

If a tenant is residing in a Los Angeles City rent-controlled unit, or an apartment with "just cause" eviction protections, the tenant cannot be forced to leave just because the landlord sold the building, or lost it in foreclosure. The tenant, however, must continue to pay his or her rent on time. If the new owner refuses to accept the rent, then the tenant should open an escrow account and place his or her rent into that account and send the new landlord a letter advising that an escrow account has been opened to hold the rent until requested.

The City of Los Angeles has extended Just Cause Eviction to ALL rental units in the City of Los Angeles through December 31, 2011. A tenant cannot be forced to move unless the new owner (bank or lender) has "just cause". However, if you live elsewhere in the state of California, then the new owner is merely required to provide you with 90 days notice to vacate, unless your local rent control laws provide otherwise.

Under the City of Los Angeles Rent Stabilization Ordinance (RSO), tenants evicted for "no fault" reasons (which includes a foreclosure) are entitled to relocation assistance of at least $7,300 if the tenant resided in the unit for less than 3 years, and $9,650 if the tenant has resided in the unit for 3 years or more. If the rental unit is occupied by a qualified tenant (senior citizen, disabled adult, or dependent child), then the qualified tenant is entitled to $15,500 if the qualified tenant resided in the unit for less than 3 years, and $18,300 if the tenant has resided in the unit for 3 years or more.

A lower amount of relocation assistance is required for smaller properties (4 units or less) where the owner is seeking to occupy the premises, or to move in a resident manager AND the owner does not own any other tenant occupied structures. In such instances, eligible tenants are only entitled to $7,000 and a qualified tenants are only entitled to $14,000 in relocation assistance.

The relocation amounts above are subject to annual adjustment, so current figures should be verified. It should be clearly noted that the relocation assistance amounts noted above are the total sum paid to all of the tenants in a rental unit, and that sum must be shared or divided if the rental unit is occupied by more than one individual.

Other Recent Legislation

There was a bill recently passed that blocks public access to tenant eviction records by most members of the public (so that the information would not be used against the tenant—for example, as negative information on a credit report) if a tenant is evicted as a result of foreclosure (unless the landlord prevails in a post-foreclosure eviction action). The law also requires that an informational “cover sheet” with a notice to renters be included with any eviction notices delivered within one year of a foreclosure sale. The failure to attach this cover sheet subjects the owner to a $500 fine, in addition to any other fines or penalties provided by law. (S.B. 1149, 2009-2010 Reg. Sess. (Cal. 2010).)

Due to fraud, deception, harassment, and unfair dealing by foreclosure consultants, California also has enacted consumer protection measures requiring foreclosure consultants to put all consultant service agreements in writing. Foreclosure consultants must also provide clients with a statutory notice and right to cancel the contract within five days.

Effect of the Protecting Tenants at Foreclosure Act

The PTFA is more protective of tenants’ rights in foreclosure than is California state law with respect to the potential for a tenant to remain until the expiration of the lease term even after foreclosure, and as or more protective with respect to advance notice required before a tenant can be forced to vacate the property (California law generally requires 60 days’ notice to vacate for tenants (or 90 days for Section 8 tenants) after a foreclosure). California law, however, provides certain rights to tenants that go beyond the scope of the PTFA, as described above. Further, certain local ordinances requiring “just cause” for eviction of tenants after foreclosure add a layer of protection not included in the PTFA.

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