Can I be sued for breach of contract if I foreclose on a rental property?
Full Question:
Answer:
The answer will depend on the facts involved, such as what the nature of the foreclosure is and whether it is a residential home involved. If it is a foreclosure by a lender on a residential home, there are new laws in effect in CA.
In California, before a home is sold in foreclosure, a “Notice of Sale” must be posted at the home.
The following notice must also be posted at the home and mailed to the tenant:
“Foreclosure process has begun on this property, which may affect your right to continue to live in this property. Twenty days or more after the date of this notice, this property may be sold at foreclosure. If you are renting this property, the new property owner may either give you a new lease or rental agreement or provide you with a 60-day eviction notice. However, other laws may prohibit an eviction in this circumstance or provide you with a longer notice before eviction. You may wish to contact a lawyer or your legal aid or housing counseling agency to discuss any rights you may have.”
Until the home is sold, the tenant must continue to pay monthly rent to the landlord. The tenant owes rent to the new owner once the home is sold. If the new owner wants the tenant to move out, they must give a 60-day written notice. If the tenant doesn’t move out within 60 days, they can begin the eviction process. The new owner cannot cut off utilities, change the locks or make other efforts to throw the tenant out.
The landlord must return the security deposit minus any lawful deductions, or transfer it to the new owner. If they fail to do so, both the old and new owner are liable.
If the tenant has a written lease with the landlord and signed the lease after the landlord took out the mortgage, the new owner does not have to honor the lease. If the tenant signed the lease before the landlord took out the mortgage, it may still be valid and the new owner may have to honor the lease.
Lenders or their agents often offer home occupants "cash for keys" - an up-front payment to move out by a certain date, earlier than the required 60 days. Tenants who agree to "cash for keys" should make sure to get that agreement in writing signed by an authorized bank representative. If the property is in a city with rent control, they are covered by its eviction regulations, and the 60 day period doesn't apply.
If there were any mistakes in serving the 60-day eviction notice, it an be appealed. Such notices must be in writing; must be served on the tenant either in person or by mailing plus posting to the front door; and cannot be issued until the lender has recorded a trustee deed certifying that it has repossessed the house.
If the tenant does not move out after 60 days, the lender must file for unlawful detainer (eviction) and get a judge's permission to proceed with an eviction. If the tenant has not been able to relocate, it is possible to dispute the eviction, which may delay the process another two or three months.
If you are instead selling a rental property to a new owner, typically the lease will remain in effect unless the lease terms provide for early temination upon sale of the property. Generally, a landlord is not relieved of his obligations under a lease upon a sale of the property unless the lease provides so, and the new owner will usually assume the obligations of the lease in the contract of sale.
