I just want to focus on what the current situation might mean to you. It's obvious your landlord is having financial difficulties. My suggestion is to first call your landlord and let him/her know you are aware of the circumstances. Hopefully, they will be responsive and forthcoming about their likelihood of salvaging their mortgage. Depending on the information you get (and believe), your next step might be to stop paying rent and find a new place. If you already paid for your last month and/or a security deposit, you risk loosing it. Time is on your side now so I would advise being pro-active. If you're cutting out on the lease make sure you let your prospective landlord know up front and provide proof so they don't reject your application. You might also consider "investigating" future rentals/landlords for stability. You can research King County's records http://184.108.40.206:8193/legalacceptance.asp? to see if a Trustee Notice or Foreclosure Notice has been filed against your new landlord before decide move in. It's easier if you have the property's parcel number but the legal owner's first and last name should work fine. And trust me you probably won't be the last renter to find themselves in these circumstances.
1. Do you have a lease or a month to month? Absent having a lease, or perhaps having moved in with a month to month after the default occurred, it's hard to see how the tenant would have any damages from the foreclosure of the landlord's interest. They would had no contractual right to stay beyond the notice provisions required by law, and thus no damages. This might be different in Seattle, where the landlord is more limited as to the right to kick a tenant out.
2. If it is a lease, when does it expire? If it expires prior to the foreclosure date, and there's no option to renew, then again it's hard to see how the tenant was damaged. But again, if it was entered into after the default, perhaps there are other claims the tenant could make. Move in/move out costs might become an element of damages.
3. How does the lease rate compare to market rates, and what are the costs associated with moving? Those are questions that would go to whether the tenant has any significant damages from the potential foreclosure. If say the lease was a sweetheart deal, then they might have significant damages. If the lease rate was extremely high, or perhaps a lease entered into by a couple where one has since left, the lease terminating early might actually be a good thing for the tenant.
4, What is the date each monthly term starts, and how does that compare to the foreclosure date? This relates to the last month where the tenant does have some real concerns. I believe Washington law allows 20 days for the tenant to stay after the sale. Assuming the monthly period starts the day before the sale date, then the tenant could risk losing about 10 days rent if the property does end up getting foreclosed. Some decisions might have to be made there. For example, perhaps paying a late fee to make sure the sale does not occur on the scheduled date before paying rent. But if that is done, then a prospective landlord might be turned off by even the one period of paying rent late. There's some risk to that course of action.
5. Has the tenant talked to the landlord, and if so, what have they said? About the only obvious claims of the tenant that come to mind are that the tenant might have would be either a fraud claim (where the tenancy was started after the default) or an anticipatory breach of contract claim. Both issues are problematic, and so it would be best to know the landlord's stated plans and explanations.
6. Does the lender have an assignment of rents clause, and if so have they done anything to collect on it? To answer the first part the attorney would probably need to contact a title company, and then research the current status of the law assuming no action has been taken by the lender.
7. How large is the building being foreclosed? If a single family residence it's much more likely the new owner would require the tenant to move than if the building is a 40 unit apartment house. Empty apartment houses are not very valuable.
The bottom line is that the question asked does not contain sufficient detail to know the answer, but it is unlikely that absent something more than a simple notice of trustees sale that an attorney would advise a client to simply quit paying rent because the landlord was in default. That default alone probably does not entitle the tenant to a 3+ month period of not paying rent. Also, assuming the attorney does think that the tenant does have some sort of a claim, they'll need to assess the amount of that claim and its strength. Absent paying rent the landlord may very likely start an unlawful detainer case against the tenant, which could be expensive to defend and affect their ability to get new housing in the future. The course of least resistance would be to simply pay the rent and then move when the time comes.
Thus, the question asked does not have a simple answer, and anyone facing that situation would need to consult their own attorney (or perhaps a tenant services group). The answer the attorney gives could turn on any one of the questions above, or another question. Or it might turn on a city ordinance. Each case would be fairly fact specific.
This is an excelent example of why people should not get legal advice from real estate agents--especially ones in different states. Following John's advice will get an eviction on the tenant's record, which will not be good.
Anyway I think it was Steve McDonald that first hit on the deposit issue (as well as last months rent, if applicable). This is yet another reason to see an attorney. I suspect they'd have less of an issue with you not paying that last month before foreclosure if you'd already paid last month's rent, but even that is not an "easy" call. And I doubt they'd have you not pay rent because of a deposit.
However, the deposit should be in a separate account containing only deposits. That may provide some protection in the event of a bankruptcy. However, either the tenant of the attorney should contact the landlord to make sure the funds are in a separate account. That's rather a toothless law if I recall correctly.
What I personally suggest is that you go on looking for a different property, or you refer your landlord to a foreclosure specialist who can help them avoid foreclosure and either keep the house or sell to another buyer. More often than not, buyers will want to keep the existing tenants given that they have a decent rental history. There are many options for homeowners facing foreclosure.
Rather obviously if the tenant isn't paying rent it will be even harder for the landlord to make the mortgage payments. That the property MIGHT be foreclosed is not a defense to paying rent. You haven't cited any authority to the contrary.
The bank most likely has an assignment of rents that they could exercise if they wanted to, but they typically would not in a single family house situation. Until they do, the right to the rents are the landlords AND there's absolutely no defense to the tenant to paying the rent.
Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.
(1) An "act of equity skimming" occurs when:
(a)(i) A person purchases a dwelling with the representation that the purchaser will pay for the dwelling by assuming the obligation to make payments on existing mortgages, deeds of trust, or real estate contracts secured by and pertaining to the dwelling, or by representing that such obligation will be assumed; and
(ii) The person fails to make payments on such mortgages, deeds of trust, or real estate contracts as the payments become due, within two years subsequent to the purchase; and
(iii) The person diverts value from the dwelling by either (A) applying or authorizing the application of rents from the dwelling for the person's own benefit or use, or (B) obtaining anything of value from the sale or lease with option to purchase of the dwelling for the person's own benefit or use, or (C) removing or obtaining appliances, fixtures, furnishings, or parts of such dwellings or appurtenances for the person's own benefit or use without replacing the removed items with items of equal or greater value; or
I would consult an attorney on the 2yr rule.
1) The tennant is obligated to pay the rent until trustees sale no matter the circumstances. (Unless otherwise agreed upon by the owner)
2) The Property owner is obligated to pay the mortgage.
3) The property owner can not knowing collect rent with no intention of paying the mortgage.
4) This is also true in the event of a short sale. No mortgage payment, no collecting rent unless it is to be used in settlement.
I would reccommend you consult an up to date R.E. attorney, You might also ask the bank. who filed the NOD. I have done both. I also don't believe this is a California only rule, why would it be featuered on the national news. Could be wrong about that!
Your rental agreement has value to the current and future owner of the property.
The problem is this: If the tenant would be allowed to quit paying, that would make curing the default even more difficult. And since the tenant is allowed to continue to live in the home up until the time it's foreclosed, that would merely give them a windfall--they might not suffer any damages at all as a result of the foreclosure (especially in a month to month situation). Also, while a house is in foreclosure, the bank typically won't accept partial payments, so the landlord might not have a choice once the bank starts the process.
That said, if the landlord knew the property is actually going to be sold at foreclosure, they probably should come to some sort of an agreement with the tenant to the extent they can. If the tenant has a lease, then they would have moving expenses that the landlord would possibily be liable for. If it's a month to month, then perhaps just giving them notice is all they'd have to do.
Finally, it's really more the bank that would have a complaint against the landlord, because they probably have an assignment of rents. Remedies there vary state to state. In Washington the bank would have to take action to collect the rents.
That said: In general if your lease was executed after the mortgage was recorded, or if you have a month to month, you will be likely forced to move if the property ends up being foreclosed. The problem is, the owner may save the house from foreclosure. Absent some claim of offset, or the lender executing on an assignment of rents, I can't think of any reason why you wouldn't have to pay rent to your landlord.
There's actually a poorly written piece in the P-I on this where I made a number of comments in the "Soundoff" section linked at the bottom.
But again, I'd recommend getting an attorney to advise you, unless perhaps you have a month to month and it might be simply easier to give notice and move.