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Rent Watch

Foreclosure's effect depends on whether tenant has lease

May 10, 2009

Question: I rent a house from a landlord who told me that he had bought the home as an investment a few years ago. From what I have read recently, this is the type of homeowner who may be facing foreclosure as a result of the collapse in housing values. Do I have to move if my landlord loses the house in a foreclosure sale?

Answer: Your rights depend on whether you are a month-to-month tenant or you have a lease.

For month-to-month tenants, if the property is returned to the mortgage holder or purchased by a new owner, a California statute effective since July requires that you receive a 60-day written notice to move. You have no right to remain in the house after the 60-day notice expires, and if you don't vacate, you may find yourself being served as a defendant in an eviction case, called an unlawful detainer.

Tenants with unlawful detainer judgments on their records find it very difficult to persuade future landlords to rent to them. Tenants with leases can continue to remain in the property until their lease expires, but only in the very limited situation in which the lease was signed before the mortgage. This right to remain is stronger if a memorandum of the lease was also recorded with the county, but that is a very rare occurrence. Otherwise, a tenant with a lease is entitled only to the same 60-day notice after the foreclosure is finalized.

Sometimes, new owners or mortgage holders may be willing to compensate a tenant for moving early, offering what is known as "key money" or "cash for keys." They may also be willing to let a tenant stay for a period of time, but any such extension should be in writing.

Beware of paying rent to someone who has already lost the property in foreclosure or someone pretending to be the new landlord. You may think you are paying rent when in fact the money is totally wasted.

-- Martin Eichner, Project Sentinel

Eichner is director of Housing Counseling Programs for the Sunnyvale, Calif.-based mediation service.

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