I know this is a question that SHOULD be directed towards an attorney! Can an owner continue to collect rent when short selling and will the?

Asked by Amanda Mitchell, San Diego, CA Tue Dec 14, 2010

new owners have to uphold the lease of the current tenants in California?????

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Steve Hovaki…, , Burbank, CA
Tue Dec 14, 2010
I was in a transaction when tenant was in Month 2 Month, seller was collecting the rent, we did the short sale by disclosing everyone including new buyer,. We got in to contract with buyer to assume the cost associated for evection after close of escrow. Of course, the tenants have right to ask moving cost, buyer and tenant signed “Cash for Key” CAR form and transacting went smooth.
You may wish to contact a lawyer or your legal aid or housing counseling agency to discuss any rights you may have.
Tenant’s Question :Who do I pay rent to?

Until the home is sold, you must continue to pay your monthly rent to your landlord. You owe rent to the new owner once the home is sold.
If the new owner wants you to move out, they must give you a 90-day written notice. If you don’t move out within 90 days, they can begin the eviction process. The new owner cannot cut off your utilities, change the locks or make other efforts to throw you out.

Hope this was helpful
Good Luck
1 vote
Eli Givoni-S…, , Boca Raton, FL
Wed Jan 5, 2011
Hi Amanda,

I am not an attorney and you are welcome to contact one. However, in my short sale experience, I will tell you that I do believe many of my clients have continued to collect rent while they were short selling their properties, and no, they did not pay the mortgage with that rent. I also believe that a lease will need to be upheld through the course of a sale. Many of my clients have offered tenants a discounted rent to break the lease early, though. This way they could save up for an unexpected move.

Please call us directly to discuss your specific situation. Our services are FREE to homeowners. We look forward to hearing from you.

Eli Givoni, Director
Serving all 50 states
0 votes
Ute Ferdig, Agent, Newcastle, CA
Wed Dec 15, 2010
Well Amanda. Why would they not have to pay rent? If they have a lease and use the property to live in, they owe the rent. That would be the case even if the house were in foreclosure. There is no such thing as staying for free and, with the exception of rent skimming, there is no law that I am aware of that says that the landlord has to use the rent money to pay the mortgage.
The new owner takes subject to tenant's existing rights whatever those may be. If it's a month-to-month and the former owner did not give proper notice, the new owner has to give proper notice and the tenant has to pay. The other issue is, where does the tenant go to get the deposit back after he/she moved out? The former owner should either give the deposit back to the tenant or transfer it to the new owner pursuant to the law. It's my understanding that, in CA, former owner and new owner are jointly and serverally liable for the return of the deposit, which means that the new owner could be ordered to return the deposit even if the old owner did not transfer the deposit to the new owner, which is fair as the tenant should not be caught in the middle. So, regardless of whether you represent the buyer or the seller, it would be a good idea to address the return of the deposit in the purchase agreement if you want to avoid problems down the road.
0 votes
John Juarez, Agent, Fremont, CA
Tue Dec 14, 2010

You asked two questions and my guess is that the answer to both is “yes”. But, what do I know? I am not an attorney and my opinion cannot be relied upon in your case. Even if I am right, I know that there are more details that you will need to know about. Check with your broker since your brokerage may have an attorney on retainer who can answer these questions for you. CAR legal hotline is an excellent resource.
0 votes
Hannah Nerbo…, Agent, Seattle, WA
Tue Dec 14, 2010
I have seen this scenario in Seattle before (Washington is also a non-recourse state). The contracts are two separate issues. If the lease is valid, it must be honored by the bank or the new owners. However, the bank will likely require the rent that has been collected to be given to them as part of their approval of the short sale, usually as a separate check. A typical scenario for Sellers who do not squirrel that money away to be given to the bank later or apply it towards their mortgage as it is collected, is that they will not get much sympathy with the bank on their short sale application, and thus face the consequences of that action -- such as denial of short sale approval, future tax consquences, etc. Recommend you check in with a qualified attorney in your area for laws specific to Calilfornia and facts specific to your own contract/note with your bank.
0 votes
Kurt Wannebo, Agent, San Diego, CA
Tue Dec 14, 2010
If there is an NOD filed the homeowners are not allowed to collect rent. Yes new owners must honor lease if over 1 year.
0 votes
Jeff Larabee, Agent, San Diego, CA
Tue Dec 14, 2010
Yes, the new owners will have to uphold the lease of the current tenants. The banks that foreclose on properties and boot the tenants are under a different law. If it is not a bank foreclosure then the lease contract is enforceable.

Good luck,
0 votes
Cory La Scala, Agent, San Diego, CA
Tue Dec 14, 2010
Whether an owner is still paying on his mortgage when he's short selling, is between the bank and the owner, who are in communication during a short sale. As far as the lease, it may depend on how the lease is worded.

So please see an attorney!
0 votes
Jeffrey Doug…, , San Diego, CA
Tue Dec 14, 2010
Dear Ananda,

I would recommend that you speak to your Broker or manager or call the California Association of Realtors legal hotline. Also the CAR site has lots of good information regarding tenant rights in a foreclosure.

Many Sellers continue to collect rent without making mortgage payments. Of course if they are being honest with the short sale request, they would disclose this income. A lease would usually be an arms length situation, not a family member or close friend.
Web Reference:  http://car.org
0 votes
Tyler Brown, Agent, Cardiff, CA
Tue Dec 14, 2010
I am not an attorney and you should consult someone capable to answer. In my unlicensed/unqualified opinion the mortgage and the lease are two separate contracts with different parties. So, they have full right to obtain a lease with tenants and collect rent whether or not they are fulfilling the terms of the mortgage. As a RE Broker specializing in short sales and a property manager I always suggest they seek legal counsel. I then offer my opinion that it's not worth getting a tenant as it could jeopardize the short sale. If they are going to do it anyways I suggest they do a month to month lease with a highly reduced rent. I suggest that they make sure to disclose the property is for sale, as a short sale, and that the property is in distress (and foreclosure). I suggest they use a property manager and follow the law to a T. Good luck!
0 votes
Anna M Brocco, Agent, Williston Park, NY
Tue Dec 14, 2010
Since it's a legal question, you really should consider asking an attorney the question--if answered it could be a code of ethics issue regarding, "do not engage in the unauthorized practice of law."
0 votes
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