Foreclosure in Temecula>Question Details

Frankie, Other/Just Looking in Temecula, CA

My friends signed a year lease in Apr just found out the house foreclosed. Can they stay the term of lease or only 90 days?

Asked by Frankie, Temecula, CA Mon Sep 27, 2010

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I agree with a combination of the answers below. Your friends will be offered cash for keys first, but if there is truly a documented "valid" lease, they will also have the option to stay through the end of the lease, as long as they can document that the amount of the lease is at market value.
2 votes Thank Flag Link Tue Sep 28, 2010
The "Protecting Tenants at Foreclosure Act of 2009." States that the tenant can stay until the end of the lease on a foreclosed home and that month-to-month tenants would be entitled to 90 days' notice before having to move out.
I think most banks are going to follow the law and they may offer you cash for keys to get you to move out earlier.
The Realtor isn't there to throw you out. I believe most want to help you but are also being told what to do by the bank. Everything is negotiable so talk to them.
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2 votes Thank Flag Link Tue Sep 28, 2010
Ignoring the bank representative is probably not the best route to take. The bank will not be able to honor a lease they can't see. The 90 day notice or honoring of the lease will depend on when it was written (see below) Your friend needs to make proper contact quick and start paying rent to the right party as instructed right away to keep his lease in force. Otherwise he'll be subject to what any other tenant is subject to when they don't pay the rent. I've copied and pasted the legal jargon from CAR here:

Q 57. Does a lender intending to start the foreclosure procedure have any responsibilities to a tenant?

A Yes. A provision of SB 1137 which went into effect on September 9, 2008 requires the "mortgagee, trustee, beneficiary, or authorized agent" on the deed of trust when posting a notice of sale to also post a statutory notice (in 6 different languages) about the pending foreclosure. This notice must also be mailed to the tenant (and also to the owner/occupant) addressed to the "Resident of property subject to foreclosure sale." For a copy of this notice, click here . (Cal. Civ. Code § 2924.8(a).)

Q 58. How does foreclosure affect a tenant's rights?

A The purchaser at a trustee's sale or grantee in a trustee's deed acquires title free and clear of all rights of the landlord or the landlord's successors (owner of the property being foreclosed). At the time of foreclosure, any interest in the property held by third persons, such as tenants, is determined by the "priority" of the tenant's interest. The basic rule of priority is that interests created earlier get higher priority.

Lease Recorded after the Foreclosing Deed of Trust

A lease that was recorded after the deed of trust is subordinate to the deed of trust (Dover Mobile Estates v. Fiber Form Products, Inc. 220 Cal. App. 3d 1494 (1990); Miscione v. Barton Development Co., 52 Cal. App. 4th 1320 (1997)). Since the deed of trust has priority over the subsequent lease, the lease and the tenant's right of possession is terminated by the foreclosure of the deed of trust. The purchaser at the foreclosure sale can evict the tenant (as well as a former owner) by an unlawful detainer action. However, see the exception below.

In this situation, the purchaser must serve the tenant with a written notice to quit giving the tenant 60 days (Cal. Code Civ. Proc. § 1161b(a)). On the other hand, the purchaser need only provide the former owner (or party to the note) living in the property with a written 3-day notice to quit (Cal. Code Civ. Proc. § 1161a(b)). Local ordinances can affect this result. Parties should consult their own counsel to obtain advice regarding local rent control requirements.

NOTE: A federal law that went into effect May 9. 2009 and expires December 31, 2014 may force a foreclosing lender or purchaser at a trustee's or foreclosure sale to honor the lease after foreclosure. The new law requires that the immediate successor-in-interest at foreclosure to allow "bona fide" tenants with leases to occupy the property until the end of the lease term except the lease can be terminated on 90-days notice if the unit is sold to a purchaser who will occupy the property. A "bona fide" lease is one where the tenant is not the mortgagor or a member of the mortgagor's family (child, parent, or spouse), the lease is the result of an arms length transaction, and the lease requires rent that is not substantially lower than fair market rent or is reduced or subsidized due to a Federal, State or local subsidy. (P.L. 111-22, H.R. 4173 extended sunset date.)

Lease Recorded before the Foreclosing Deed of Trust

On the other hand, a lease that is recorded before the deed of trust has priority over the lien of the deed of trust and is not affected by a foreclosure of the junior deed of trust. The title of the purchaser from a foreclosure sale is subject to the lease and the tenant's right of possession under the lease. (Vallely Investments, L.P. v. BancAmerica Commercial Corp., 88 Cal. App. 4th 816 (2001).) Commercial leases should typically be recorded to remain in effect after a foreclosure.

Residential leases are typically not recorded. The lien of the deed of trust has priority over any prior unrecorded, unknown lease in excess of one year. That means if the beneficiary (of the deed of trust) has implied notice of the lease as a result of the lessee's possession of the premises, then the prior unrecorded lease retains priority. The open and visible occupation of property by a tenant constitutes notice of his or her leasehold interest to a subsequent purchaser who, thus, receives his or her title interest or lien subject to the possessory rights of the tenant. (Standard Oil Co. v. Slye, 164 Cal. 435 (1913).)
1 vote Thank Flag Link Tue Sep 28, 2010
They probably can stay at least the 90 days. Someone should be contacting them about a cash for keys program. They should have a copy of the lease and if necessary show that. However, they have tenant rights and most likely can stay there in compliance with the goals of the new owner for 60-90 days and get cash for keys.
1 vote Thank Flag Link Tue Sep 28, 2010
Hi Frankie,
If the lease is a market value lease or considered reasonable by normal standars they should have the option to finish out the lease.
It may be wise to seek counsel from a real estate attorney if the agent or bank gets demanding.
It would be very wise to find out your rights to see what rights the lender has.

Harold Sharpe - Broker
So Cal Homes Realty
(951) 821-8211
California Department of Real Estate License # 01312992
1 vote Thank Flag Link Mon Sep 27, 2010
Frankie: If you and or your friends have any other specific questions, I have a recommendation for a Real Estate Attorney in Corona that gives free consultations. Good luck to your friend.

0 votes Thank Flag Link Thu Sep 30, 2010
Thank you all, I printed out and passed on your comments to my friend. Hopefully he listens and calls the agents back.
0 votes Thank Flag Link Wed Sep 29, 2010
Gary and April have inserted a very important piece of info in their answer. Pay close attention to the "NOTE" part, particularly the parts about "bona fide tenants" and "bona fide lease", and whether or not the new owner plans to occupy the property. As long as the lease is an arms length transaction they should be able to stay at least 90 days. If the new owner is NOT planning to occupy the property, they should be able to stay until the end of the lease. In any case, it's always best to consult with an attorney.
0 votes Thank Flag Link Tue Sep 28, 2010
Well, The bank showed up at his door, tried to get his information so they could offer cash for keys OR report information of the lease back to the bank BUT my friend thinks ignoring them and contacting an attorney is his best bet. The agent that showed up at his door wasn't 100% sure whether the bank would do the 90 days thing or honor the lease to the end but they were sure at the very least , my friend would be offered cash for kets. since my friend refused to give them the lease or their names for that matter, I guess this drama will draw out a little more. I will let you know how it unfolds. He was quite happy with stone walling and couldn't wait to share it!
0 votes Thank Flag Link Tue Sep 28, 2010
There are all sorts of potential legal issues here and consulting an attorney is always a good idea.
If paying attorney fees is not in the budget, have your friends follow Chris' advice. A representative from the bank ill show up with a "cash for keys" offer.
If they're not making payments to anyone, tell your friends to save the money, it might be enough for a down payment.
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0 votes Thank Flag Link Tue Sep 28, 2010
I'm not sure if it matters what your friends have leased the property for. If the lease is valid and still in contract when the bank forecloses, then the bank has to honor the lease. As others have said, tell your friends to sit tight and wait for the bank to contact them. And when they do, give them a copy of the lease.

Of course, your friends might prefer to move and accept the financial relocation agreement. But, the important thing to remember is they do have options and won't be tossed out when the property changes hands.

Best of luck to you!
Web Reference:
0 votes Thank Flag Link Tue Sep 28, 2010
They don't know if its at market value but we think it sounds close, maybe a little lower then market.
0 votes Thank Flag Link Mon Sep 27, 2010
Thank you all for our thoughts and answers. I am going to find out if their rent is at market value
0 votes Thank Flag Link Mon Sep 27, 2010
I agree with Chris. They will be contacted by the new owner or the bank. I know of people in a similar situation that received cash to move out within a month and others that have been able to renegotiate the lease. Let the new owner or bank make the first move and then have your friends make the next.
I know of a great real estate attorney who will give them a free consultation. Let me know if you want this info.

I hope this helps.

All the best!

Ryan Smith
0 votes Thank Flag Link Mon Sep 27, 2010
Tell them to sit tight, the new owner (the bank or investor) will contact them. They maybe offered some sort of incentive (cash) to move or possibley work something out to finish the lease. California law gives them rights as renters so they will be fine.

Good luck!
Chris Blasic
0 votes Thank Flag Link Mon Sep 27, 2010
Yes they can stay for the remainder of the lease, however the monthly payment may change if the bank determines that they are not currently paying fair market value. Also, they may have to allow showings of the property.
0 votes Thank Flag Link Mon Sep 27, 2010
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