Anyone, including the foreclosing lender, can bid on the home at a foreclosure sale. Usually, the lender bids on the property using what’s called a “credit bid.” If the lender’s credit bid is highest bid at the foreclosure sale, the lender gets the property.
People who take out a home loan sign a security instrument, typically either a mortgage or deed of trust. This document gives the lender the right to sell the property through a foreclosure if the borrowers don’t make the loan payments or violate the agreement in some other way.
State law, in large part, governs the foreclosure process. The procedure will be either judicial or nonjudicial.
The lender starts a “judicial foreclosure” by filing a lawsuit in court. If the court agrees that the borrowers have breached the loan agreement, the court orders the home to be sold at a foreclosure sale.
But in two states, Connecticut and Vermont, the court may give the home's title directly to the lender. This process is called a "strict foreclosure."
In a “nonjudicial foreclosure,” the lender follows specific out-of-court steps to foreclose. State law describes exactly what the lender must do to complete the process.
While the exact steps vary among states, the lender might have to do one or more of the following:
Once the lender completes the state-specific process, a foreclosure sale will take place.
A foreclosure auction is open to the public. The sale usually takes place in the sheriff's office or at the county courthouse, often on the front steps. Sometimes, foreclosure auctions are online. Online foreclosure auctions are becoming common.
After the sale, a deed is issued that puts the home's title in the high bidder’s name. The deed is then recorded in the county records.
With a "credit bid," the lender bids the debt that the borrower owes at the foreclosure sale. Basically, the lender gets a credit in the amount of the borrower's debt.
Only the mortgage lender, which has a secured lien on the property, can credit bid for its collateral (the home). So, at the foreclosure sale, the lender is allowed to make a credit bid.
Other parties who bid on a property at a foreclosure sale, like members of the public or a nonforeclosing junior lienholder, must bid cash or a cash equivalent, such as a cashier's check. If a third party is the high bidder at the sale, the sale proceeds repay the borrowers' debt.
The lender can credit bid as high as the amount owed on the promissory note, plus accrued interest, late fees, and foreclosure costs, without having to come up with actual cash at the sale.
Also, if the foreclosing lender wants to bid over what it’s owed for some reason, that lender can come to the sale with a cashier’s check just like any other third-party bidders.
A “specified bid” means that the lender has specified the amount of its bid. The term "specified bid" is used to indicate that the lender’s opening bid is less than the amount owed to the lender.
Usually, though, the lender will bid up to the amount owed when other bidders are present with a “reserve credit bid.”
With a “full debt bid,” the opening bid covers the full debt. If the homeowner has equity in the property, the lender will probably make a full debt bid.
Again, while the lender can credit bid the full amount of the debt at the sale, including foreclosure fees and costs, it might bid less.
When the winning bid at the foreclosure sale is less than the borrower's total debt, the lender might be able to seek a deficiency judgment against the foreclosed homeowner. Whether the lender can get a deficiency judgment depends on state law.
Typically, the foreclosing lender is the high bidder at a foreclosure sale. After the lender buys the property at the sale and gets title to the home, the property is considered “real estate owned” (REO).
If you’ve defaulted on your mortgage loan, consider talking to a lawyer to learn about the foreclosure procedures in your state and find out whether you have any potential defenses to the action. You can also ask a lawyer for information about loss mitigation options, like a mortgage modification or short sale.
Or you may contact a HUD-approved housing counselor to learn about foreclosure alternatives.
]]>Your state’s laws might even give you some more time to remain in the home.
Before the PTFA, most renters—even those with leases—had to move out of a rented property after the landlord went through a foreclosure. Eviction following the foreclosure usually happened rather quickly because of a common rule in most states: the “first in time, first in right” rule
Under this general rule, if a mortgage or deed of trust was recorded before the lease, a foreclosure wipes out the lease. So, tenants in foreclosed homes became month-to-month renters, and the new owner could terminate the tenancy after providing proper notice under state law.
After the economic crisis began in 2007, millions of homes went into foreclosure, and tenants often found themselves quickly put out on the street. To assist tenants in this predicament, President Obama signed the PTFA into law on May 20, 2009. Once the PTFA went into effect, a bank that took over a property after the landlord failed to make the loan payments was no longer able to kick the tenants out right away. But the PTFA expired on December 31, 2014.
The Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155), signed into law on May 24, 2018, repealed the PTFA’s sunset date. As a result, the PTFA’s protections for renters after a foreclosure went back into effect permanently as of June 23, 2018.
The PTFA provides protections to bona fide tenants who have a lease and those who don’t, like month-to-month renters.
In most cases, tenants who enter into a bona fide lease before the notice of foreclosure may stay in the home until the end of the lease term. But if the buyer who purchased the property at the foreclosure sale intends to move into the home, that buyer may terminate the tenants' lease after giving 90 days' notice. (12 U.S.C. § 5220, notes.)
The PTFA defines a "bona fide tenant" as a person in possession of the property—with or without a lease—if:
Renters who don’t have a lease, such as month-to-month renters, or those with a lease that can be terminated at will, get 90 days’ notice before having to move out of the property.
Importantly, the PTFA also provides that if state law gives a more generous amount of time for renters to stay in the home, that longer period applies. (To learn more about tenants’ rights in foreclosure, see Rights of Renters in Foreclosure.)
In the years after the PTFA expired, some states, like Illinois and North Carolina, implemented their own versions of the law to protect tenants after a foreclosure. Usually, state laws that provide protections to tenants after a foreclosure are pretty similar to the PTFA.
Under Illinois law, for instance, the new owner may terminate a bona fide lease at the end of the lease term by giving the tenants at least 90 days written notice. Though, like with the PTFA, if the new owner intends to occupy the property as a primary residence, the owner can end the lease by giving no less than 90 days written notice. In the case of a month-to-month or week-to-week lease, the new owner may terminate the lease by giving at least 90 days written notice. (735 Ill. Comp. Stat. § 5/9-207.5.)
If you’re renting a home going through foreclosure or have already been foreclosed and need help enforcing your rights under the federal PTFA, consider talking to an attorney. An attorney can also advise you about state laws providing additional protections beyond the PTFA.
Also, a lease-holding tenant who must move out so the new owner can move in might consider suing the former landlord in small claims court. An attorney can tell you more about options for your particular circumstances.
]]>So, to incentivize the former homeowners to move out peacefully and voluntarily, the new owner (usually the bank that foreclosed) sometimes offers them a lump sum of money. This type of transaction is called a “cash-for-keys” deal.
A cash-for-keys arrangement often works like this: After your legal right to live in the home ends, whether that's shortly after the sale or at the end of a redemption period, you’ll receive a letter from the new owner (again, usually the bank) or someone acting on the new owner's behalf, offering you a specific amount of money. Typically, the amount will be a few hundred to a few thousand dollars.
You must agree to vacate the home by a set deadline in exchange for the funds. You’ll have to leave the property in “broom swept” or “broom clean” condition, which means you’ve cleaned up the place, didn’t vandalize anything, cleared out your trash, and didn’t strip the home of fixtures, like appliances, lights, or copper wiring.
If you move out by the deadline and leave the property in satisfactory condition, you’ll get the money. You'll likely have to agree to a final inspection where you’ll hand over the keys and get payment. The money you get is supposed to help pay for your relocation costs.
Banks commonly offer cash-for-keys agreements after foreclosures and during evictions, and sometimes as part of a deed in lieu of foreclosure agreement. You’re more likely to get this kind of offer if the bank is the buyer at the foreclosure sale and the property becomes REO. Having a cash-for-keys policy is a standard procedure with many foreclosing banks.
If a third party buys the home at the foreclosure sale and doesn’t offer you a cash-for-keys deal, consider proposing one. You’ll have to move out eventually anyway, and you might as well try to get some money to soften the blow.
For the new owner, providing a cash-for-keys deal is usually faster and much cheaper than pursuing an eviction and possibly having to fix up a damaged property after the disgruntled homeowner moves out. So, if the new owner offers you money to leave, but you think it’s unfairly low, ask for a higher amount.
Though, don’t get greedy. You shouldn't ask for more than you reasonably believe you’ll need to relocate. The bank or other new owner might withdraw the offer if you ask for too much.
If you’re uncomfortable negotiating a cash-for-keys deal on your own or have questions about how long you can legally live in the property, consider talking to a foreclosure lawyer. An attorney can tell you about your options before and after a foreclosure sale, inform you about foreclosure procedures in your state, and help you work out a cash-for-keys deal to help cover your relocation costs.
Talk to a HUD-approved housing counselor if you can’t afford to hire a lawyer.
]]>Those who buy a tenant-occupied foreclosed property often find that a tenant whose lease has been extinguished by the foreclosure won’t vacate the property. Before filing an unlawful detainer (eviction) lawsuit in court, the new owner has to serve the tenant a three-day written "notice to quit" (leave). (The three-day period doesn't include Saturdays, Sundays, or other judicial holidays). The new owner may then file a lawsuit to evict the tenant.
But just how quickly can the new owner get the ball rolling to evict a tenant after a foreclosure? A recent California Supreme Court decision clarifies the timing requirements.
In the case of Dr. Leevil, LLC v. Westlake Health Care Center, 431 P.3d 151 (Cal. 2018), Westlake Village Property, L.P. (Westlake Village) owned property in Thousand Oaks, California, that it leased to Westlake Health Care Center (Westlake Health). Westlake Village took out a loan, which was secured by the property. Westlake Village later defaulted on the loan, and the bank sold the loan (the promissory note and deed of trust) to Dr. Leevil, LLC (Leevil), which began a nonjudicial foreclosure.
Leevil was the high bidder at the trustee’s sale and, the following day, served a three-day notice to quit on Westlake Health—five days before the trustee’s deed transferring the property to Leevil was recorded. Leevil filed an eviction lawsuit about a month later.
Westlake Health argued that the eviction action was invalid because Leevil served the notice to quit before the trustee’s deed was recorded. The California Court of Appeal rejected this argument, deeming the eviction lawful. Westlake Health then petitioned the California Supreme Court to review the matter.
The California Supreme Court reversed the Court of Appeal’s judgment and decided that Leevil had to perfect title (record the trustee’s deed) before serving the three-day written notice to quit on Westlake Health.
The California Supreme Court noted that summary eviction proceedings apply only “in specified circumstances.” (Cal. Civ. Code § 1161a(b)). Under section 1161a(b)(3), summary eviction proceedings are allowed following a trustee’s sale, but only when “the title under the sale has been duly perfected.”
Based on the statute’s wording, the Court decided that the perfection of title (recording the trustee’s deed) must happen before the owner could start summary eviction proceedings, including serving a three-day notice to quit.
So, the bottom line is that, in California, a new owner who gets title to a tenant-occupied property through a nonjudicial foreclosure must be on the property’s title before serving a three-day notice to quit to the tenant.
Foreclosure law is complicated, and this case involved a commercial property rented to a business. If you’re a tenant in a property that’s being foreclosed, you should be aware that, for residential properties, you might be protected from eviction—at least for a while—under the federal Protecting Tenants at Foreclosure Act of 2009 or California state law.
If you have any questions about when you have to move out of the property following a foreclosure, consider talking to a lawyer.
]]>After the loan is accelerated, the borrower can no longer pay off the loan in installments. The loan changes from an installment contract to a debt that's due in a single, lump-sum payment.
The most common kind of default that leads to loan acceleration is when the borrower doesn’t make the required payments.
But other types of contractual violations can also lead to acceleration. For instance, if the borrower transfers the home's title without getting the lender’s prior written consent, the lender can usually require immediate payment of the full loan amount.
If the borrower doesn't pay back the entire outstanding loan balance after the loan is accelerated, the lender can start a foreclosure to recoup the amount owed.
Acceleration generally happens after the lender makes a clear demand for payment of the entire loan balance. Most mortgages and deeds of trust contain a clause that requires the lender to send a notice, commonly called a "breach letter," after the borrower defaults. This letter warns the borrower that the loan is in default before loan acceleration and foreclosure.
If the lender sends a breach notice before acceleration, courts are split as to whether acceleration gets triggered by the notice or the expiration of the cure period given in the notice. Sometimes, though, acceleration automatically occurs when the borrower fails to make a payment. In some places, the filing of a foreclosure complaint (lawsuit) accelerates the loan.
State law or governmental guidelines govern the timing and notice of acceleration before a foreclosure.
A breach letter typically has to specify the following:
Generally, the servicer will send this letter when the borrower is around 90 days delinquent on payments. That's because, under federal law, in most cases, a foreclosure can't start until the borrower is more than 120 days delinquent on the loan. If you don't cure the default, the foreclosure will begin.
The notice also frequently informs the borrower about the right to reinstate the loan after acceleration (see below) and the right to assert the non-existence of a default or raise a defense in a foreclosure proceeding.
State law often permits the borrower to reinstate the loan after acceleration to stop the foreclosure. Some states, for example, have a law allowing a delinquent borrower to reinstate the loan by a specific deadline, like 5:00 p.m. on the last business day before the sale date or some other cutoff.
If state law doesn't specifically provide a right to reinstate, many mortgages and deeds of trust contain written language giving borrowers a specific deadline for getting current on the loan. Check your loan documents for a paragraph called "Borrower's Right to Reinstate After Acceleration" or something similar. Often, the contract allows the borrower to reinstate at any time prior to the earliest of:
Also, even if the loan contract doesn't mention anything about reinstatement, the lender might, after considering the situation, let you reinstate.
But you might not get the right to complete a reinstatement if the lender accelerated the loan because you sold or transferred the property without permission. Check the mortgage or deed of trust that you signed when you took out the loan to get detailed information about your right, if any, to reinstate the loan.
To reinstate, you’ll have to pay the lender all of the overdue amounts as if no acceleration had occurred, cure any other kind of default, and pay all expenses that the lender incurred in enforcing the contract, like:
The lender might require you to make a reinstatement payment with a money order, certified check, bank check, cashier's check, or electronic funds transfer.
After you reinstate, the mortgage or deed of trust, and your obligations under it, remain fully effective as if no acceleration had occurred.
Depending on state law and the circumstances, once the loan is accelerated and if you don't reinstate or take other steps to stop the process, the lender will either:
After the lender fulfills all of the legal requirements for foreclosure, the home is sold to a new owner at a public sale, often the foreclosing lender. With judicial foreclosures, a sheriff's sale is customarily used as this last step in the foreclosure process. In nonjudicial foreclosures, trustee's sales are common.
The successful bidder at the auction becomes the new owner of the property, and the proceeds go toward paying off the loan.
If you can't keep up with your mortgage payments, notify your loan servicer immediately to find out what kind of options are available to you.
If your loan has been accelerated and you’re facing a foreclosure, consider talking to a foreclosure lawyer to learn whether you might have any available defenses and to learn about the different loss mitigation options that might be appropriate for your situation.
If you can’t afford a lawyer, a HUD-approved housing counselor is an excellent (free) resource, especially for information about different ways to avoid a foreclosure.
]]>You’ll potentially face a summary judgment if you're in a judicial foreclosure, but not in a nonjudicial one.
If you default on your mortgage loan, the bank can go through a specific legal process, called "foreclosure," to sell your home and pay off your debt.
Depending on state law and the circumstances, the bank will either:
To begin a judicial foreclosure, the bank files a complaint, petition, or similar document with the court. It then serves a copy of the complaint to you, along with a "summons." The summons will tell you about your rights and say how many days you get to file a formal response in writing, called an “answer,” with the court, usually 20 or 30 days.
If you decide to file one, the answer must contain legally acceptable responses to the allegations against you in the complaint. An answer is your chance to respond to the complaint's claims and formally raise any defenses or counterclaims you have against the bank or the loan servicer.
If you don’t file an answer, the bank will ask the court for a "default judgment." With a default judgment, you automatically lose the case. The bank will get everything it asked for in the complaint. So, it will get the right to sell your home at a foreclosure sale and perhaps a deficiency judgment, depending on state law and the circumstances.
But if you file an answer to the suit, the bank won’t be able to get a default judgment from the court. Instead, the bank will probably file a motion for summary judgment.
In this kind of motion, the bank asks the court to rule in its favor without holding a trial or any further legal proceedings because your answer wasn’t sufficient. For example, the case's main facts aren’t in dispute, any defenses you’ve raised lack merit, or you didn’t show that the bank or servicer violated the law. If the court grants summary judgment in favor of the bank, typically after a hearing, the bank wins the case, and your home will be sold at a foreclosure sale.
But if the court denies the bank’s motion for summary judgment, litigation (including discovery and trial) will go ahead. At the end of the trial, the judge will likely either:
With a nonjudicial foreclosure, subject to a few exceptions, the foreclosure usually happens totally outside of the court system. You won’t get a chance to answer a foreclosure complaint, and summary judgment won’t be part of the process.
Once the bank finishes the steps required under state law to foreclose—like mailing you a foreclosure notice, publishing a notice of sale in a newspaper, and posting sale information at your home—it will hold a foreclosure sale.
If you want to fight a nonjudicial foreclosure in court, you’ll have to file your own lawsuit. Be aware that nonjudicial foreclosures usually move quickly. So, if you get a notice about a nonjudicial foreclosure and want to challenge it, talk to an attorney about filing a suit as soon as possible.
If you want to file an answer to a foreclosure lawsuit, consider hiring a foreclosure lawyer. A lawyer can tell you about available defenses in your situation, prepare a response to file in court on your behalf, argue your case at a summary judgment hearing if necessary, and represent you throughout the entire foreclosure process.
If you need information about loss mitigation options, it's also a good idea to talk to a HUD-approved housing counselor.
]]>If you’re a renter who’s discovered that your rental property is facing or is under foreclosure, here’s some guidance on how to navigate the situation.
When an owner defaults on a mortgage, it means that they have failed to comply with the terms of the promissory note or mortgage (or deed of trust) they signed when they took out the loan to purchase the property. Most often, the owner goes into default when they don’t make the required monthly payments. A default occurs as soon as a payment is missed.
In general, when the owner fails to make the payments on their mortgage for more than 120 days, the lender can begin the foreclosure process. This means that the lender can use state procedures to sell the house to repay the debt. (Foreclosure procedures vary from state to state.)
When the foreclosure is complete, there’s a new owner of the property—most often a bank. The bank can hold onto the property or sell it. Many banks will pay a servicing company to handle the property post-foreclosure. But don't expect active property management—these companies are focused on financial matters, not mundane things like maintenance.
Lending banks (the mortgage holders) typically attach a rider, or special agreement, to the mortgage or deed of trust documents when a buyer intends to use the building as a rental. This rider, called a 1-4 Family Rider (Assignment of Rents), is used by lenders in every state for one- to four-unit investment properties and two- to four-unit principal residences. Its main purpose is to give the lender the right to receive the rent when the buyer has defaulted on the mortgage. (You can get a copy of the 1-4 Family Rider from the Fannie Mae website.)
To understand how the rider works, think like a banker for a minute. The property is generating income and the buyer is falling behind on the mortgage. In order to cut its losses as quickly and as thoroughly as possible, the lender wants to get its hands on the rent.
Once the lender gives the owner a written notice of default, lenders in most states have the right to receive the rent directly from the tenants. Lenders have to give written notice to the tenants, and they typically do so by letter, posted notice on the property, or in person.
The 1-4 Family Rider is a standard form that's used for small properties (four or fewer rental units). Banks and buyers use a standard form because they assume that the relatively small size of the deal doesn't merit lengthy negotiations between the parties.
Larger properties almost always have the same sort of arrangement—if the owner falls behind on the mortgage payments, the lender gets the right to receive the rent. Usually, these arrangements are negotiated by the banks and the buyers' lawyers and might include unique provisions that are hammered out by the parties.
As far as tenants are concerned, though, when it comes to paying rent, the bottom line is the same: With proper notice, they will be expected to pay the rent to the bank.
Before President Obama signed the "Protecting Tenants at Foreclosure Act of 2009," most renters lost their leases upon foreclosure. But this legislation provided that leases would survive a foreclosure. The tenant could stay at least until the end of the lease, and month-to-month tenants would be entitled to 90 days' notice before having to move out.
An exception was carved out for the buyer who intends to live on the property—this buyer may terminate a lease with 90 days' notice. Importantly, the law provides that any state legislation that is more generous to tenants will not be preempted by the federal law. These protections apply to Section 8 tenants, too.
The federal law came to an end on December 31, 2014, but was restored on June 23, 2018, as part of the Economic Growth, Regulatory Relief, and Consumer Protection Act. Also, many states and municipalities continue to provide the same protection.
Local laws may come into play, too. Tenants who live in states or cities with "just cause" eviction protection as part of a rent control law are also protected from terminations at the hands of an acquiring bank or new owner. These tenants can rely on the law’s list of allowable reasons for termination. Because a change of ownership, without more, does not justify a termination, the fact that the change occurred through foreclosure will not justify a termination.
During the default and foreclosure process, even though the bank is receiving the rent payments, all other rights and responsibilities that the owner/landlord has with respect to the tenants remain in place. Until the bank actually forecloses, the owner is still the owner. This leads to problems if the tenants need maintenance or repairs done on the rental unit.
Landlords who are in foreclosure are often unwilling to make repairs: Without a source of income from the rental property, most owners will be unable (or unwilling) to maintain it. For the tenant, however, the owner's disillusionment is beside the point, because in every state, landlords must maintain fit and habitable rental housing. So how does a tenant enforce this right against a demoralized (and possibly broke) owner?
According to the Family Rider, the lender must apply the rent money to property management costs, including maintenance, before it applies the money to the unpaid mortgage. But the Rider explicitly does not obligate the lender to assume the maintenance duties of the owner. Unless there's a specific local or state law to the contrary, the lender's right to receive rent money doesn't turn that lender into the landlord for purposes of maintaining the property.
If conditions seriously deteriorate to the point where the home is not fit to live in, tenants might find themselves stuck between an owner who has no ability to take care of business, and a lender who has no obligation to do so.
Self-help remedies are tricky. Tenants might need to avail themselves of a tenant's "self-help" remedy, such as rent withholding and repair-and-deduct (note that only some states give these remedies to tenants).
But here is where things get tricky: Rent withholding and repair-and-deduct work because they pressure owners to take care of repairs so that they can receive the rent. But banks aren’t familiar with property management and maintenance, and they have no legal obligation to maintain the property (the owner retains that duty). Not paying the bank isn’t likely to result in prompt attention to that leaking roof or broken water heater—it's more likely to result in a notice to vacate or, particularly in situations where tenants survive the foreclosure, continued inattention until conditions deteriorate further.
In many cities, housing and health departments are charged with responding to unsafe and unsanitary conditions in rental housing. They typically have powers that range from ordering the owners to take care of business (under threat of contempt of court), to taking over the property altogether and running it until they've fixed the problems (and charging the owner for the privilege).
Although these government agencies can, and should, still do their jobs, their intervention might be ineffective. The agencies will be dealing with an owner who has no resources to contribute (and who might even be impossible to locate), and a bank who has no legal duty to step up. Results will differ when the government takes over because the efficiency of local and state agencies varies tremendously.
New owners might want to terminate existing tenants because they believe that vacant properties are easier to sell. Common sense suggests otherwise. In many situations a building full of stable, rent-paying tenants will be more valuable (and command a higher price) than an empty building. Emptied buildings are also prone to vandalism and other deterioration—after all, no one is on site to monitor their condition. When entire neighborhoods become a wasteland of empty foreclosed multifamily buildings, their value drops even further. It's hard to understand why new owners choose to pay lawyers to start eviction procedures instead of paying a modest fee to a management company to collect rent and manage the property while they wait to sell.
Cash for keys. To encourage tenants to leave quickly and save on the court costs associated with an eviction, banks often offer tenants a cash payout in exchange for their rapid departure. Thinking that they have little choice, many tenants—even Section 8, protected tenants—take the deal. It doesn't help them much as they join the swelling ranks of newly displaced tenants (and former homeowners) who are competing to find an affordable new rental.
Thanks to the legislation explained above, most tenants with leases will keep their leases, and month-to-month tenants will have at least 90 days to relocate. Tenants with leases have no legal recourse against their former landlords, because they are in the same position with the new owner as they were with the old: The lease survives and ends as it would had there been no foreclosure. Similarly, month-to-month tenants always know that they can be terminated with proper notice.
However, a lease-holding tenant whose rental has been bought by a buyer who wants to move in to the property might end up less fortunate than before the foreclosure—these tenants might lose their lease with the state-required notice, a result that probably would not have happened had the owner simply sold the property to a buyer who intended to occupy the property. (Normally, the new owner has to wait until the lease ends, absent a lease clause providing for termination upon sale, though such clauses might not be legal in all situations.)
A lease-holding tenant who has to move out so that new owners may move in might consider suing their former landlord in small claims court. Here's how it works.
After signing a lease, the landlord is legally bound to deliver the rental for the entire lease term. In legalese, this duty is known as the "covenant of quiet enjoyment." A landlord who defaults on a mortgage, which sets in motion the loss of the lease, violates this covenant, and the tenant can sue for the damages it causes.
Small claims court is a perfect place to bring such a lawsuit. The tenant can sue the original landlord for moving and apartment-searching costs, application fees, and the difference, if any, between the new rent for a comparable rental and the rent under the old lease. Though the former owner probably isn’t flush with money, the awards in these cases won't be very much, and the court judgment and award will stay on the books for many years. A persistent tenant can probably collect what's owed eventually.
For more information on suing a landlord in small claims court, see Everybody's Guide to Small Claims Court or Everybody's Guide to Small Claims Court in California.
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