Rental Basics in Seattle>Question Details

Genova, Other/Just Looking in Seattle, WA

Do I continue paying rent after receiving the Notice of Trustee's Sale?

Asked by Genova, Seattle, WA Tue Nov 25, 2008

W I live in Seattle, WA. In October posted on the house was a Notice of Default on the mortgage for our landlord. We just received November 19th a Notice of Trustee's Sale. As renters, are me still required to pay rent?

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26
Genova,
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://146.129.54.93:8193/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.
Good luck,
Steve
2 votes Thank Flag Link Wed Nov 26, 2008
Here are some facts that an attorney might want to ask/know before advising a tenant in the situation described in the question.

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.
1 vote Thank Flag Link Sun Nov 30, 2008
John, that's part of the distressed property law, and applicable when someone purchases a property subject to an EXISTING mortgage. Basically a sale leaseback situation where the buyer takes the property subject to a mortgage that they are supposed to make payments on. That is not the situation we're talking about here. This is just a straight landlord tenant situation from any indication of the question.

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.
1 vote Thank Flag Link Sat Nov 29, 2008
Owner has hefty deposit and receiving hefty rent. Found out they have not been paying on both mortgages for over 7 months. Had individuals taking pics & 1 stated checking to see if house is occupied. It would be a great burden financially if we suddenly have to with regard to (moving exp, deposits again, not receiving our deposit back). My question is - do I have to still pay rent when they are not paying their mtges and we have one letter stating if all was not pd in full by 4/7/12 that foreclosure proceedings will commence? Oh and owners were notified that we knew and stated they were upside down and were trying to get banks to work with them...both work (executives)...interesting!!! to say the least
0 votes Thank Flag Link Wed May 9, 2012
I'm in CA, and most equity skimming laws are typically applied to lease Options or options to purchase. I've worked on many short sales that have tenants and have consulted with a real estate attorney and according to my attorney, it is not illegal to collect rent while you still own the property. There may be a clause in your mortgage about assignement of rent to the lender; however, the lender has to exercise their right to by sending official notice. Otherwise, tenant is responsible for paying the rent for up until the owner no longer owns the home. If the tenant has issues with this, they should move out. Nothing is for free. The owners have consequences for not paying the mortgages and the tenants have consequences if they chose not to pay rent - ie eviction. As many have stated, consult your own attorney. These are serious matters so don't take anyone's word or interpretation unless they are properly credentialed and they are on the hook for giving correct answers...
0 votes Thank Flag Link Wed Jun 29, 2011
Genova,

Our recommendation is to consult an attorney for the most reliable information and best advice.

Good luck
0 votes Thank Flag Link Wed Jan 21, 2009
You are in a state that may have a landlord tenant act like the state I am in. If it does the landlord tenant act should spell out specifically what your rights are in this case. You should be able to contact your local board or state commission to get a copy of any state regulations regarding Landlord/Tenant relations.
0 votes Thank Flag Link Wed Jan 21, 2009
It's funny the things you first think of when you wake up. For me it was this thread!

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.
0 votes Thank Flag Link Wed Dec 3, 2008
Genova, this is an easy answer. You are required to pay rent according to the terms of your rental contract. If you don't, you are subject to eviction/late fees just like any other rental agreement.

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.
0 votes Thank Flag Link Mon Dec 1, 2008
Florida Real Estate contract documents now include an addendum to lease contracts that provide an agreement that the tenant may discontinue paying rent if and when they are notified that they must vacate due to foreclosure proceedings. All tenants should try to clarify in their lease agreement what would happen in case of foreclosure. Otherwise, we suggest contacting a good attorney for advice to protect your rights and yet avoid negative credit reports.
0 votes Thank Flag Link Mon Dec 1, 2008
I would advise conulting with an attorney immediately.
Web Reference: http://www.cindihagley.com
0 votes Thank Flag Link Mon Dec 1, 2008
Cindi Hagley…, Real Estate Pro in San Ramon, CA
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John, I am an attorney! I practiced bankruptcy law. You don't know what you're talking about.

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.
0 votes Thank Flag Link Sat Nov 29, 2008
The issue I raised is called "Equity Skimming". There are different versions from different states. This one is from Washington State Legislature;

61.34.020
Definitions.
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.
0 votes Thank Flag Link Sat Nov 29, 2008
Kary, you really need to read what I'm saying more closely! How does anything I've said make foreclosure more likely? Here's a summary!
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!
0 votes Thank Flag Link Sat Nov 29, 2008
Scott is correct. But I would not reccomend to stop paying the rent without talking with the owner first, even if the notice of trustees sale has been posted. There should be a mutual agreement between both parties. If I were the tennant, I would also advise the owner that collecting rent with no intention of paying the mortgage is against the law. A quick call to a local attorney would be advised.
0 votes Thank Flag Link Sat Nov 29, 2008
John, perhaps in your state it's illegal to collect rent, but I really doubt that. That would be a rule that makes little sense because it would just make a foreclosure more likely. This thread, however, is based on Washington law, and I'm fairly certain there's no relief from paying rent simply because the landlord has foreclosure actions pending against them.
0 votes Thank Flag Link Sat Nov 29, 2008
If it is a quetsion of law you would want to speak with a local attorney however in most cases where i interact with tenants whose landlords are taking the rent but not paying the mrotgage, the tenants stop paying upon receiving notice of sale, they should keep the money aside though in case the landlord reinstates their loan by paying or througha n agreement, then the tenant would be subject to eviction for not paying, as long as teh rent is put aside you can bring it current at that tome to avoid eveiction as long as you had not received two previous eviction letters for non payments of rent in the last year.
Web Reference: http://www.ScottSellsNH.com
0 votes Thank Flag Link Sat Nov 29, 2008
Once again, It is against the law to collect rent if you are not paying the mortgage. It is the responsibility of the property owner not to collect the rent if he is in fact defaulting on the loan and not paying the mortgage, which is usually the case. You can't just pocket that money when it in fact belongs to someone else. This is a criminal offense and you could go to jail. However, if the property owner is making an attempt to save his property and is paying the rental money + any shortfall to the lender, the owner has every right to collect the rent. The important thing here is who's decision is it? The renter is not in the decision process, he must pay the rent as long as the owner is collecting. It is not the renters decision to not pay the rent. It is the owners responsibility not to collect.
0 votes Thank Flag Link Sat Nov 29, 2008
You are required to pay the rent until the ownership of the property is transferred because your contract is with the owner. All kinds of events can happen until the day of the sale, especially now, because banks are working a lot with current owners or potential buyers to avoid foreclosure.

Your rental agreement has value to the current and future owner of the property.
0 votes Thank Flag Link Fri Nov 28, 2008
The Notice of Trustee's Sale comes out at least 3 month (90 days) before the sale. There may be a repeat notice that is within 3 weeks.
0 votes Thank Flag Link Wed Nov 26, 2008
If there is a NOD and he is not making payments he has no legal right to collect rent. It is against the law and the landlord could go to jail. This is a fact. Sorry your taking this personal! If he in fact is not like the vast majortiy of homeowners in default and is trying to catch up on the loan, doing a loan modification & making his mortgage he has every right to collect his rent. I believe the question was "paying rent after receiving the Notice of Trustee's Sale." Once the Notice of Trustees sale there is only ~ 3 weeks left. If its gone this far in the process the landlord probably has no intention of salvaging his property.
0 votes Thank Flag Link Tue Nov 25, 2008
John, California might have such a rule, because they have a lot of rules that make no sense! ;-)

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.
0 votes Thank Flag Link Tue Nov 25, 2008
I always say to get the advice of a good attorney. I have had many short sales under my belt. I do not agree with the other postings here. It is unlawful for a lanlord to continue to collect once the notice of default has been served. If he's not paying the mortgage why should he be able to collect rent. I know this is true in California.
0 votes Thank Flag Link Tue Nov 25, 2008
I have to agree with both of these answers. Your contract (providing you had one,) is with the landlord, not the bank. Again, if you choose to default, I'd consult an attorney first.
0 votes Thank Flag Link Tue Nov 25, 2008
You really need to consult an attorney on this one. The answer could depend on a few facts.

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.

http://seattlepi.nwsource.com/local/388958_needle22.html

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.
0 votes Thank Flag Link Tue Nov 25, 2008
Yes. Your landlord still owns the property up to the time the property is sold by the Trustee. That will probably be in 90 days. After the Trustees Sale your lease/rental agreement will be terminated. Your obligation up until that time will be to the owner/landlord. If you fail to pay rent you are subject to eviction.
0 votes Thank Flag Link Tue Nov 25, 2008
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