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.
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 Â§ 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. Â§ 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. Â§ 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).)
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
California Department of Real Estate License # 01312992
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.
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!
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!