Our landlord lowered our rent significantly in an effort to keep us in the home. We just found out that the home is in foreclosure. What should we do?

Asked by Dablues61, San Jose, CA Tue Sep 6, 2011

I found out that a Notice of Default has been filed with the Recorder of Deeds and we have been receiving numerous offers and such in the mail and on our door to refinance or do a short sale. Our landlord told us that they had been trying to refinance the home but since they have been unsuccessful they are going to try selling it instead. That is why they lowered our rent - to compensate us for the inconvenience of showing the home and needing to make it available for perspective buyers. Now we find out that they are not paying the mortgage and we could be out sooner than we think. We would just like to know what our rights are as tenants and if we stopped paying the rent would they still be allowed to evict us if they are going through foreclosure and not paying their mortgage?

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22
realestate_l…, Agent, Fresh Meadows, NY
Tue Sep 13, 2011
BEST ANSWER
Jo Ann You didnt address the question, She was asking what the right thing to do was ? Not if you can find her a house or not. . Do you really think you will be able to get this person a mortgage after they get a judgment against them for a forclosure in this market where the banks are not giving money to people that would have once been considered qualified? You go right ahead and find them a house. lol
@ Sean Yang I think you misunderstood the question ,the poster is not forclosed upon (You may want to consider changing your response), leases revert to month to month automatically in most states if the lease is not renewed the same rules are in effect unless the landlord changes them,If they are not acceptable the tenant can move out. Answering the tenants question in a nut shell Ask an Attorney But common sense tells you they still own the property until the bank takes pocession,they still are responsible to pay for the utilities and maintenance.SO ask yourself this question and you will find the answer, Should I take services without paying for them? The landlord still must pay for the utilities you use and eventually will have to even if they are not. The landlord is still responsible to pay the balance not covered by the homes equity if it is forclosed upon, If a short sale is done they are walking away from any equity they had built up or lost due to market condition and circumstances,If you dont pay the rent are you making the losses they are facing any better ? If you were the landlord would you want this done to you? By asking yourself these questions ,the answer will be very clear to you. good luck and I know you will do the right thing.
1 vote
Mark Burns, , Cupertino, CA
Tue Sep 6, 2011
Unfortunately, you are a tenant. You are renting the property on a lease or month to month agreement. Your obligation is to pay the rent. If someone advises you not to pay rent, keep in mind a judgment may be part of the eviction process and affect your credit and ability to rent or purchase in the future.
.

You should consult an attorney or landlord/tenant counselor.

Mark Burns, Realtor
DRE #00896552 Licensed since 1985
Web Reference:  http://www.markburns.com
2 votes
Sharon Paxson, Agent, Del Mar, CA
Mon Sep 12, 2011
Your lease is with your landlord, and I am sure there is a contract reflecting that. You have some good answers, and I have to concur, that if are you in a situation to purchase as opposed to lease, I would recommend that.
1 vote
Jennifer Mu's…, Agent, Arcadia, CA
Thu Sep 8, 2011
You should not stop paying the rent. You do not mention what type of lease you have with the owner, whether there is a specific time period your lease is for or you are on a month to month lease. Paying the rent is your obligation and preserves your rights to stay in the property, under the terms of your lease. The question of whether the landlord is paying his mortgage has no bearing on your obligations. If the home is foreclosed on, there will be a new owner and you would be obligated to pay rent to them after title transfers and they would be obligated to fulfill the terms of your lease within the scope of the law. If you are on a month to month, they may seek to terminate your residency and might give you notice but that is probably a way down the road. If you like the place you are in pay your rent to preserve your rights and enjoy the rent reduction while it lasts. They may come to terms with their bank and there will be no foreclosure or there might be a foreclosure and you will receive instructions on how to proceed from the new owner at some point afterward. To answer your final question about whether they would be allowed to evict you even if they are not paying their mortgage. The answer is yes. They are, and likely would evict you. One thing has absolutely nothing to do with the other. Their defaulting on their obligation to their bank has no bearing on your obligation to fulfill the terms of your lease and they are entitled to collect rent as long as they are the owner of the property. If you are uncomfortable with this type of uncertainty you might investigate moving, however this situation isn't anything worth panicking about. You aren't going to come home one day and find the locks changed by the bank. It doesn't work like that.
Web Reference:  http://JenniferMu.com
1 vote
Steven Ornel…, Agent, Fremont, CA
Tue Sep 6, 2011
Dablues61:

I researched the “distressed market” in your Zip and as of July 11th:

There are 146 Pre-foreclosure/Notice of Default, 124 Scheduled for Trustee Sale, and 97 Foreclosed REOs homes. Time to foreclose is taking 291 days and there were 5 REO Sales.

Based on the facts provided above:

1) We can loosely guesstimate it will take approximately 19.4 months before distressed REO property CURENTLY held in your zip code will actually be sold (97/5). Actually, probably longer as seven of the last 12 month in this zip the amount sold was zero or one!

2) We can also project once the foreclosure process is initiated it will take approximately 9.7 months before an actual eviction will take place (291/30).

Best, Steve
1 vote
Lauryn Eadie, Agent, Reston, VA
Tue Sep 6, 2011
Your lease is with the landlord and yes you should still pay your rent! I am unsure of California's tenant right laws, but generally speaking, whomever were to buy the home whether at auction or at short sale would have to respect your lease. If you stop paying than you could be in breach of contract and could face eviction. *I am not an attorney and would suggest you contact a local real estate attorney for legal counsel*
1 vote
Lilly Liang, Agent, San Jose, CA
Tue Sep 6, 2011
Your landlord has been going through a tough time. No one wants to have their home foreclosed unless they absolutely can not afford to keep it. As you expressed, your landlord has be very good to you all these years. Besides a month to month lease agreement you have with your landlord, perhaps you do have a friend relationship with your landlord. By your stated fact that your landlord volunteer reduced your rent due to all of these trouble causing you, I can see that your landlord is a decent landlord. Stop your rent payment is something that you would not to do to them. You might want to ask your landlord to keep your posted about the status of the home, i.e. S/S process. Worse to worse, if the home is eventually going to a trustee sale, i.e. foreclosure auction, the new owner (bank or the someone else who purchase the home at auction) will notify you. You, at then, can negotiate for whatever your mind is about to keep renting or to take some compensation and moving out. Not paying your current lease, although it is month by month, is a breach of contract. Your landlord can bring this to court for seeking damage since their agreement paying mortgage with their bank and their action defaulting on their payment that has nothing to do with your lease agreement. It is two separate contract. Good luck to you.
1 vote
Grace Morioka, Agent, San Jose, CA
Tue Sep 6, 2011
Hi Dablues61 and thanks for your post.

I have to agree with my compadre, Steve Ornellas, whose sage advice rings true! Had this been two years ago (or in 2008-09), your situation would have been fraught with unanswered questions and numerous comments from Realtors to discontinue paying the rent. However, in the past two years, both the State of California as well as the banks have come to understand and create programs that address the problems created by foreclosures of investment property.

As Steve and the other Realtors have already noted, you must continue to pay rent at the home since, until you are notified of a change in ownership, your owner is very much entitled to the rent. If you fail to pay rent, the landlord or homeowner can certainly evict you. Obviously, if the situation makes you uncomfortable, you can always discuss this matter with the landlord, terminate your lease with cause, and move to your next home. However, to ensure that you can leave and reclaim your security deposit upon existing, you should plan to terminate your lease in the manner allowed under your rental agreement--and as you have already mentioned, if you do decide to leave the home, you would prefer to handle this properly with a 30 day notice and then by leaving.

Finally, if you've been renting from this landlord for the past four years, you might consider a dialogue with the owner about the impending foreclosure and find out what he or she has to say that might allay or confirm your concerns and your plans for future housing.

Good luck to you!

Sincerely,
Grace Morioka
Area Pro Realty-PC
1 vote
Steven Ornel…, Agent, Fremont, CA
Tue Sep 6, 2011
Dablues61:

You may not be in such a bad situation for the following reasons:

1) While the Notice of Default is the first step in the foreclosure process it's taking much more time than the pre-foreclosure-crisis of 90-121 days to foreclose. Unfortunately, you did not include your zip code otherwise I could have given you an estimate of how long you have.

2) Your Landlord is now looking to Short Sale, that's easily a 2 to 9+ month journey.

3) Your rent has been lowered, and finally

4) Please review the following to be aware tenant protection laws regarding your situation:

CA's "Protecting Tenants at Foreclosure Act" - need to know info!
http://www.trulia.com/blog/steve_ornellas_mba_re_mastersgri/…

What’s happening to your Landlord does not relieve you from paying rent!

Best, Steve
1 vote
Adria Quinon…, Mortgage Broker Or Lender, San Jose, CA
Tue Sep 6, 2011
Dablues61- Unfortunately, this issue will continue to plague the real estate market, especially with the increase in short sales we are seeing.

Another suggestion is to contact Project Sentinel where they can offer you some free advice: http://www.housing.org or call

San Jose Fair Housing Consortium
152 North Third Street, 3rd Floor
San Jose, CA 95112
Phone (408) 287-HOME (287-4663)
Fax (650) 321-4173
info@housing.org
Services FH

--------------------------------------------------------------------------------
Good Luck!
1 vote
Terri Vellios, Agent, Campbell, CA
Tue Sep 6, 2011
FYI, agents and Brokers are not to give Legal advice. Broker Sean perhaps mis-read the question. You only pay rent to the person who owns the house. Since it has not been foreclosed or sold yet, I read that the sellers are still entitled to any written agreement you have with them.

When you have a question of what is legal, seek legal advice.
Web Reference:  http://www.terrivellios.com
1 vote
Terri Vellios, Agent, Campbell, CA
Tue Sep 6, 2011
The problems the seller's have with their mortgage is not a reason for you to breach a contract you and the seller's have together. If you Breach your contract they probably could evict you. Then you could have a breach on your credit and be difficult to rent in the future.

http://www.dca.ca.gov/publications/landlordbook/index.shtml Here is the link to the California Tenant Rights Handbook.

Just to give you a perspective if there is a Notice of Default with a sale date that sale date is the date that it is scheduled to go to public auction. However if they are attempting to short sale they could be in negotiations with their bank and possibly postpone the sale until it is sold to a new owner.

I suggest you work with the seller while they are going through this tough time. You have rights and your cooperation may result in a much better experience for all.

All the best to you.
Web Reference:  http://www.terrivellios.com
1 vote
Shawn Ryan R…, Agent, Belleville, NJ
Mon Dec 12, 2011
you cannot be forced to leave by any bank if you continue to comply with the terms of your lease. once the foreclosure is finalized, the bank may offer you cash to leave voluntarily
0 votes
gabriel palo…, Agent, Pompano Beach, FL
Sun Dec 11, 2011
Remember till the owner is in legal possession of the property all matters that concern him are separate from yours relating to your lease and makes you as responsible to that agreement as it does the landlord that has approved it.. The fact that you are ware of his situation is to your advantage you are askiing what to do? That is rather simple. Look for another place to live since sooner or later with the loss of the property the landlord will loose all rights to it. You would be notified and would need to move on by the order of the court and their decision is irreversible.
0 votes
JoANN Guercio, Agent, Santa Clara, CA
Thu Sep 8, 2011
I say again. Owning is better than renting. If you can afford rent, you can afford to buy at least a small condo. Start the process and don't let someone put you in this situation again. Be in control of your own future housing.
JoANN - 408-379-2001
0 votes
realestate_l…, Agent, Fresh Meadows, NY
Thu Sep 8, 2011
Pay your rent one thing has nothing to do with the others,the only reason to stop is if your not getting the services such as heat eletric and water. and still then the money should be put in escrow.
0 votes
JoANN Guercio, Agent, Santa Clara, CA
Tue Sep 6, 2011
Buy a home or condo of your own so no one can put you into this situation again.
JoANN
0 votes
Virginia Tho…, , Cupertino, CA
Tue Sep 6, 2011
If your landlord (owner) is not forthcoming and you're on a month-to-month, start looking for another place to live. The bank is already after the homeowner for not paying their mortgage so don't become a part of the housing short sale/foreclosure drama. This can become a very complex tranaction between the owner and bank until a final decision is made. Whether you work with the landlord or not (I wouldn't advise this) there are too many variables in this scenerio that it is better to look for another place and thank your landlord for the pleasant time you had while living there and wish them well.
0 votes
Mark Burns, , Cupertino, CA
Tue Sep 6, 2011
To be very clear. It does not matter if the house is in foreclosure or not. Your only concern is after it is foreclosed on. Once title has been passed to the bank or someone else, you will immediately get a notice as to whom you should pay rent to.

As mentioned earlier; that could be a long time. If you are uneasy with this situation, your alternative is to move.


Mark Burns, Realtor
DRE #00896552 Licensed since 1985
Web Reference:  http://www.markburns.com
0 votes
Dablues61, Renter, San Jose, CA
Tue Sep 6, 2011
I am tending to agree with most of you that we should continue to pay the rent and wait until we get confirmation from the bank that it is in foreclosure. We have been in this home for 4 years and just recently went on a month to month basis as our lease had expired and neither of us prepared a renewal. I really don't want to leave our landlords hanging because they have been great to us and vice versa...I am just concerned that they haven't been forthcoming regarding this possible foreclosure/short sale and just want to cover my bases.
0 votes
Sean yang, Agent, San Jose, CA
Tue Sep 6, 2011
do not pay! if you know it for sure, he or she is not entitled to the rent. tell him or her that they are no longer the owner therefore you will not pay rent and ask for refund from the day it was foreclosed, if he or she refuses, tell them you will take them to the small claim court and get it back that way, 9 out 10 times they will back off.and just wait for the bank to contact you, if you have a valid lease agreement, keep a copy of it, bank have to honor that lease agreement. by the end, bank will pay you couple thousand of dollar to help you move out. don't be scared by anyone!
0 votes
Roland Barcos, Agent, San Jose, CA
Tue Sep 6, 2011
Hi Dablues61,
It all depends on whether or not you have a lease. If you do, it's a binding contract and survives the foreclosure. If you are month to month, you may want to start looking for another place, but there probably isn't a rush because foreclosures take awhile.

Good luck,
Roland
0 votes
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