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Landlord in Foreclosure - who do we pay rent to?
Old 03-17-2008, 11:56 AM   #1
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Landlord in Foreclosure - who do we pay rent to?

My landlord was just served a foreclosure notice. The landlords are a young couple who bought their first house with no money down, adjustable mortage from a subprime lender. A unfortunately common story.

I signed lease in Nov 07 for one year and I'm wondering who I pay my rent to for April? I think I'm still obligated to the landlords to honor the lease until the bank takes possession, right? Conversely, I think once the bank takes posession, I believe the lease is severed and the bank will have to give us 30 days notice. What are my rights as a tenant if the owners turned their keys into the bank? I'm holding out to the end because I think I may buy this place once it's hits the price point I believe it to be worth.

The realtor obtained by the landlords a few months ago, have been trying to do a short sale asking 100K more than I would offer. I think once it's possessed by the bank, the bank may want to unload right away. We have excellent FICO scores with 20% down.

Sorry for all of the questions. I'm hoping that someone like Martha or Tyran will see my post.

BTW - I live in the SF Bay Area - which SF and Santa Clara is selling like hotcakes but other areas either really bad (outer east bay) or having issues such as the one I'm in.

Thanks!
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Old 03-17-2008, 12:06 PM   #2
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How about you don't pay the rent and wait for someone to ask you for it? Legally though till the time the bank takes possesion I think you just owe it to your landlords

-h
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Old 03-17-2008, 12:12 PM   #3
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This will depend on what state you're in and what type of foreclosure proceeding is being conducted (non-judicial, judicial, etc.). Have you received something called an "Assignment of Rents" letter or notice? Have you otherwise been told anything by the LL or their bank? What state do you live in?
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Old 03-17-2008, 12:38 PM   #4
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Yes you owe the $$ to the owner of record - your landlord. I'ld bet any further payments you made are not going to the lender. Sooo - sadly - lots of people stop paying the rent because they know there is little/no recourse (the eviction process takes as long as the foreclosure process). They sit tight and wait until the new owner comes knocking.

I'ld plan to attend the auction ... if only to see what the reserve bid is (that's what they owe). Then get the bank contact info from the auctioneer (sometimes the bank attends the auction). Then have a realtor present a written offer for what you're willing to pay. Can't hurt to ask!
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Old 03-17-2008, 12:51 PM   #5
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I've had several situations where as a tenant in S.F. my building(s) were sold. Invariably the property managers and new owners told me nothing; sometimes a potential new owner or real estate company will try to extract info. from me (that they have no right to request). How did you find out they are being foreclosed? Sounds like a good time to make a lot of phone calls; do the "current" owners want a check from you? I would sent it to them (or whoever should get it) at the last minute, by certified mail, with return receipt requested. Good luck. You might check the S.F. Chronicle archives, I think this very question was addressed recently (for California in general).
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Old 03-17-2008, 02:04 PM   #6
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Originally Posted by CuppaJoe View Post
Sounds like a good time to make a lot of phone calls; do the "current" owners want a check from you? I would sent it to them (or whoever should get it) at the last minute, by certified mail, with return receipt requested. Good luck. You might check the S.F. Chronicle archives, I think this very question was addressed recently (for California in general).
Yes, from how you described them I think it would only be fair to send the poor SOBs the check until the house is acquired by the bank, but not a month longer. This isn't Bear Stearns to whom you owe the rent, it is some poor sucker trying to get by. On the other hand, you don't want to give them the check after they loose the house -- in that case you might find yourself owing back rent to the bank. Maybe you should start paying a little bit late and tell the owners you want to see something that proves they are still the owners before you hand over the check.
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Old 03-17-2008, 02:28 PM   #7
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In Minnesota, where I live, the process is as follows:

Month 1 to month 6 of default: Owner is still the legal owner, although bank has served notice for default ==> you should still pay the owner

Month 7 (typically): sheriff's sale, at which point the bank typically buys the mortgage back and becomes the owner, although the previous owner still has 90-180 days to redeem if they can pay back the whole amount due (not just the late portion) ==> you should technically be paying rent to the bank. The sheriff's sale date is published in the official newspaper of the city/county. (check with your local government what this "official newspaper" is. Where I live, very few people have heard of this little paper)

After that last redemption period ends, the bank takes possession and can legally kick you out. Be sure you know what the date is -- you don't want to get an unlawful detainer on your record because you haven't moved out by that date.

Typically after that the bank will try to sell it through its own realtor.

One more note about the short sale: you shouldn't feel intimidated to write an offer that's $100K lower than what the current asking price is. The owners have nothing to lose. The bank might decide that it's worth all the time savings to just cut their loss. You never know.
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Old 03-17-2008, 05:17 PM   #8
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Send the check to the landlord. When the foreclosure is over the new owner, probably the bank, will either ask you to leave or to pay it the rent. In my state you would be entitled to 30 days notice before they can evict you. I don't know about California.

Do you have a big deposit?
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Old 03-17-2008, 09:26 PM   #9
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The deposit is perhaps more interesting than the rent... I wonder if the bank would be responsible for returning your deposit. Definitely make sure before you pay the bank any rent.
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Old 03-17-2008, 09:34 PM   #10
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Unless there is some type of special state law, and I doubt there is, the bank would not be responsible for returning their deposit.
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Old 03-17-2008, 11:14 PM   #11
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Up until the forclosure occurs and title transfers you owe the rent to the owner. Other than a moral obligation you have to pay his, the only recourse he has if you don't pay the rent is to account for it in your security deposit and sue you in small claims court for the difference. But since he cannot access the unit to asses its condition because he doesn't own it, he effectively cannot easily win in court. In CA, a nonjudicial sale ( court step auction ) voids the lease and to get you out the bank has to start eviction proceedings. Unfortunately they are not responsible for your secureity deposit. For that, you have to sue the landlord.
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Old 03-18-2008, 08:31 AM   #12
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The deposit is perhaps more interesting than the rent
In the interest of not getting screwed ... I'ld tell your landlord you'll be using your deposit(s) for next months rent. If you need to stay 2 months (first and last) ... so be it. He has no recourse. Otherwise, if he's in dire straights ... good luck getting your $$ back.

Another advantage to attending the auction is that you'll see who your competition is; and what they're willing to pay for the place.
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Old 03-18-2008, 10:41 AM   #13
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In the interest of not getting screwed ... I'ld tell your landlord you'll be using your deposit(s) for next months rent. If you need to stay 2 months (first and last) ... so be it. He has no recourse. Otherwise, if he's in dire straights ... good luck getting your $$ back....
My lease states that the deposit is not to be used as last month's rent. It's telling that when a real estate issue comes down to the wire, a contract would be thrown out the window. Maybe I'm a fish out of water, but I would sooner let my $1,275 deposit go than to break a contract. (He and you do have recourse in small claims court, but again, so be it if I lose on this one).
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Old 03-18-2008, 10:56 AM   #14
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Stevens-Ness form for Oregon rental agreement says "28. SECURITY DEPOSIT. Landlord ackowledges reciept of $____ as a security deposit, of which landlord may claim all or part thereof reasonably necessary to remedy tenant's defaults in the performance of this Agreement and to repair damage to the premises...". Kinda looks to me like that means the deposit could be used to pay any rent OP shorted the landlord. Be very surprised if California law gave the tenant LESS rights than Oregon. How's about reading the rental agreement? Or, my favorite, have a relationship with the landlords that makes you feel ok about talking with them to find out what is going on?
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Old 03-18-2008, 11:10 AM   #15
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Stevens-Ness form for Oregon rental agreement says "28. SECURITY DEPOSIT. Landlord ackowledges reciept of $____ as a security deposit, of which landlord may claim all or part thereof reasonably necessary to remedy tenant's defaults in the performance of this Agreement and to repair damage to the premises...". Kinda looks to me like that means the deposit could be used to pay any rent OP shorted the landlord. Be very surprised if California law gave the tenant LESS rights than Oregon. How's about reading the rental agreement? Or, my favorite, have a relationship with the landlords that makes you feel ok about talking with them to find out what is going on?
Yeah, communication is the thing here; I would treat the security deposit as a separate issue from the rent. They may well agree to write a check to tenant for the return of the security deposit while at the same time tenant pays the rent to them. However, I would be loathe to break the spirit of a contract.
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Old 03-18-2008, 11:17 AM   #16
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Maybe I'm a fish out of water, but I would sooner let my $1,275 deposit go than to break a contract. (He and you do have recourse in small claims court, but again, so be it if I lose on this one).
Wow, call me if you need a place to live in the Boston area.

Having survived roughly a dozen evictions (as a landlord) I can tell you the courts will apply any deposits to the back rent - regardless of the lease wording (mine also says "Security Deposit can not be used as rent"). Sooo you owe nothing until your deposit $$ runs out. Small claims will not come into play ... it's a housing court issue.

Considering any action on his part will take as long the foreclosure process - which has already started - and this ones a no brainer.

Note that if he walks with your deposit and looses the house ... the tables are turned. You'll be the plaintiff in small claims court. Out the courts costs and vacation time triing to get blood from a stone.
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Old 03-18-2008, 11:39 AM   #17
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Wow, call me if you need a place to live in the Boston area....
I'll be right over. I've always want to live there.

Interesting that you quoted me but left out my most important sentence without four little dots.
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Old 03-18-2008, 01:39 PM   #18
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Tryan sez: "Having survived roughly a dozen evictions (as a landlord) I can tell you the courts will apply any deposits to the back rent - regardless of the lease wording (mine also says "Security Deposit can not be used as rent")".

Wonder if it's a matter of "say what ever you want in a contract - but if you go to court state landlord-tenant law prevails". That's why we just use the Stevens-Ness form, as it is all legit for this state.

Was in court yesterday at 8AM moving a tenant down the road - he burned up his prepaid last month rent last month (though he planned to keep living there), said if he didn't come up with the rent by month end he would be gone - big surprise - he wasn't. So i got to pay $58 to the court, two $28 service fees, $3 for document copies, and since he didn't contest it was a default win for us - so the judge gave him till 3/24 to be all out. When he isn't, i get to pay more service fees, waste another morning or two in court, and he'll get a notice saying "no really, this time for real, we mean it, I'm gonna count to three...". And a new deadline a week or two out. At some point the sheriff may stand there while he moves his stuff - i get to pay their wages while they are standing there too i think. Of course if he leaves anything behind i have to move and store it with reasonable care and release it to him at some point in the next month or so. Can't hold his stuff for ransom for what he owes....

Still, i'm working on being calm. Way i see it is, a lost month or two of rent isn't taking any food off our table. We're going up, he's going down and my attitude toward people is of much higher value to me than a grand or so. I like to believe people. I like to like people and i don't think i'd like me as much if i was right there enforcing my legal rights at the soonest moment i could. Kind of puts me at a disadvantage with some people, but i like to imagine that at some point they might not feel proud of themselves.
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Old 03-18-2008, 02:07 PM   #19
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Thanks to all for the great info.

We do have a security deposit in the amount of $1750. I'm not counting on getting in back should the bank take possession.

I've been sitting on the fence with this property trying to ascertain the best entry point for an offer. The economy is so incredibly unstable right now, it's difficult to find a direction, especially in the SF bay area real estate market. I also have "issues" with us being in our mid-forties having to acquire >$500K mortgage again...although that topic is whole separate thread.
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Old 03-18-2008, 03:13 PM   #20
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So i got to pay $58 to the court, two $28 service fees, $3 for document copies, and since he didn't contest it was a default win for us - so the judge gave him till 3/24 to be all out.
Wow, you're getting first class treatment from your courts.

In MA double all those fees ... then listen to an arbitrator negotiate a payment plan (another month delay) or ask to see the judge and listen to HIM tell you what the payment plan will be. Come back a month later (housing court only meets once/month) when the plan fails. And the judge will tell him when he's moving (another 2 weeks to pack and find a place to go). Then if he's still in the unit: Pay the sheriff $1500 to move and store his goods for 3 months.

Sooo on top of the 3 months lost rent, you lost another 2k moving him. YUCK. Soo, I also got used to working with people to avoid these expenses (even if it means using a deposit as last months rent).
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