A Property Being Foreclosed Upon Must be Disclosed to Prospective Tenants

Must Disclose A Property Being Foreclosed Upon to Prospective Tenants

A new law in California requires landlords to disclose to prospective tenants, before signing a lease, when a recorded notice of default has been filed against the property. This requirement only applies to apartments and single-family homes rentals of four units or less. The law resulted from Senate Bill 1191 (Simitian). Governor Brown approved the bill on September 25, 2012 and enacted in Civil Code Section 2924.85. This new law took effect January 1, 2013. If not extended, it will automatically be repealed on January 1, 2018. The disclosure must be delivered in writing. Its form specified by the legislation as set out below.

"The foreclosure process has begun on this property, and this property may be sold at foreclosure. If you rent this property, and a foreclosure sale occurs, the sale may affect your right to continue to live in this property in the future. Your tenancy may continue after the sale. The new owner must honor the lease unless the new owner will occupy the property as a primary residence, or in other limited circumstances. Also, in some cases and in some cities with a ‘just cause for eviction’ law, you may not have to move at all. In order for the new owner to evict you, the new owner must provide you with at least 90 days’ written eviction notice in most cases."

Supporters for the bill argued there are numerous risks involved when leasing a property when a foreclosure process has started:

1. Tenants typically experience a decreased in services from landlords with financial issues (e.g. not making repairs) and/or not-paying utilities .

2. When a foreclosure occurs, tenants face much uncertainty, while they may not be aware of any protections guaranteed them by state and federal laws. v 3. Even when protections are in place, the lease could be invalidated, for instance, by the new property owner desiring possession.

4. Subsequent to a foreclosure sale, tenants may often "fbe exposed to bad actors" while being subjected to misinformation and harassment from persons seeking to have them move out of the property.

5. In practice it is very difficult for the tenant to recapture a security deposit subsequent to a foreclosure process.

The Western Center for Law & Property contended that a filed NOD has become "a material fact which is essential for tenants trying to formulate an informed choice…"

Opponents of the new bill contended that requiring this type disclosure might simply exacerbate issues faced by a landlord. "By requiring the most vulnerable and smallest property owners (one thru four units) to prospective renters on notice of a filed Notice of Default, by using alarming, prescriptive statutory language and essentially translates into a ‘do not rent this property’ sign – SB 1191 aggravates the financial plight of these owners while accelerating foreclosure."

Nonetheless, the bill was passed with only some minor amendments. In accordance with the statute, violating of this disclosure requirement "shall make the lease voidable (at the tenant's option) and entitle a tenant to recover a month’s rent up to double actual loses, whichever is more, along with all prepaid rent returned from a landlord." If a tenant decides to not terminate the lease, while foreclosure hasn't yet occurred, "a tenant can make an election to deduct a maximum, amount equal to a month’s rent from rent owed in the future to a landlord." Property managers are not be liable to make this disclosure unless a landlord notifies them of a NOD and has requested them to make this written disclosure. California Association of Realtors® Members have access (LID) a new form that creates this NOD disclosure in English along with other languages proscribed by existing law.

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