A new California law requires landlords to warn prospective tenants when the property they are looking to rent is facing a foreclosure. Read on to learn what the landlord must disclose and under what circumstances you are entitled to know if the property you are hoping to rent may be foreclosed upon in the near future.
California’s Law That Protects Prospective Tenants
On September 25, 2012, Senate Bill 1191 was signed into law by Governor Jerry Brown, which added Section 2924.85 to the California Civil Code. This law requires that certain landlords who receive an unrescinded Notice of Default (the first step in the California nonjudicial foreclosure process) provide written notification of the foreclosure to any prospective tenant before a lease or monthly rental agreement is signed. Prior to the enactment of this law, landlords were not required to disclose to prospective tenants that the property they were planning to rent was subject to a foreclosure action.
Notification to Prospective Tenants About Foreclosure
If a landlord has received a Notice of Default that has not been rescinded, that landlord must provide notification of the foreclosure to prospective tenants, but only if the property that is being offered for rent is:
- a single-family dwelling, or
- a multi-family dwelling not exceeding four units.
Because of these restrictions, there are some situations where the landlord does not have to provide this notification. For example, a landlord who owns a large apartment complex does not need to let potential tenants know that a foreclosure is happening. The reasoning behind excluding large properties is that these properties are likely to continue to be operated as rentals, even after foreclosure. A single-family home or small property, however, can quite likely be allowed by a purchaser at foreclosure (particularly a bank) to go out of the rental business, though some restrictions apply (see below).
Protection for Existing Tenants?
The new law does not extend to existing tenants: Landlords (even those with single-family or multi-family buildings with fewer than five units) need not notify current tenants of an imminent foreclosure.
California does give existing tenants some advance warning, however, which must come from the foreclosing bank or lender. Tenants must be notified at least 20 days before a property is sold at foreclosure. Banks or lenders must post a “Notice of Trustee’s Sale” on the rental property. (California Civil Code Section 2924.8.)
Existing tenants who are concerned about the possibility of a foreclosure can take steps to see that they receive even more notice. Tenants can go to the county recorder’s office and file a form that tells the clerk to notify them as soon as a Notice of Default has been filed by the lending institution. This notice must be recorded at least three months before a Notice of Sale is sent. (California Civil Code Section 2924b.)
Learning of a notice of default alerts tenants that a foreclosure sale is possible, though not for at least 110 days. If they have a rental agreement, they may choose to give notice and move. If they have a lease that expires soon, they may decide not to renew it.
The form and instructions on how to fill it out are available from Nolo: California Request for Notification of Notice of Default and Notice of Sale.
You can access a list of county recorders’ offices here.
Penalties if the Landlord Violates This Law
California Civil Code Section 2924.85 provides for certain tenant rights in the event a landlord fails to give the required written disclosure notice.
- The tenant can void the lease and recover the greater of one month’s rent or twice the actual damages suffered, and all prepaid rent from the landlord (prepaid rent includes rent paid in advance, as when tenants pay on the first of the month for that month’s residency; and any rent designated “last month’s rent” as part of the security deposit).
- The tenant can elect not to terminate the lease (so long as the foreclosure has not yet been completed) and deduct the amount of one month’s rent from future rent amounts owed to the landlord.
Contents of the Written Disclosure Notice
The written disclosure notice provided to the prospective tenant must include information that:
- the foreclosure process has begun on the property, and the property may be sold at foreclosure
- if you rent the property, and a foreclosure sale occurs, the sale may affect your right to continue to live in the property in the future
- your tenancy may continue after the foreclosure sale and that the new owner must honor the lease unless the new owner will occupy the property as a primary residence, or in other limited circumstances, and
- in some cases and in some cities with a “just cause for eviction” law, you may not have to move at all, and that in order for the new owner to evict you, the new owner must provide you with at least 90 days’ written eviction notice in most cases.
Effective Dates for the New Law
This law goes into effect on January 1, 2013. It is scheduled to sunset (end) on January 1, 2018.
For More Information
To read the full text of the law and review the history of the bill, go to http://leginfo.legislature.ca.gov/faces/billSearchClient.xhtml and search for SB 1191 in the 2010-2011 session year. Nolo’s California Residential Lease includes the disclosure language explained here.