Foreclosure Responsibilities

My building is going be foreclosed. What is my responsibility to my tenants after the bank takes control of the building? Do I need to warn them before the building is taken?

Many apartment buildings in San Francisco are being transferred to banks and other financial institutions as a result of the dire economy. In January 2009, one large local owner relinquished control of over fifty buildings to the bank. Increasingly, the lenders are becoming landlords. As such, they have the same rights and responsibilities as you, the preceding owner.

When a foreclosure occurs, the tenancy continues as though the building was simply sold to a regular, or individual, buyer. Foreclosures do not affect the rights of tenants under the rent law. San Francisco tenants are therefore entitled to continue with their tenancy under the same terms and conditions of tenancy as before. Unfortunately, many of the national and international institutions that are taking control of these foreclosed assets do not appreciate this fact, and there have been reports of tenants being unlawfully asked to vacate, services wrongfully severed, and tenants unable to pay rent because they simply do not know where to make payments or how to make out their checks.

While no law specifically imposes an obligation upon you as the soon-to-be former owner to apprise the tenants of the impending change in management, a good landlord should transmit information to the residents about the new owner (bank) so that rent can be paid; in addition, to avoid litigation and problems down the road, you should also advise the bank, in writing, about the existence of each tenancy and the pertinent terms. To that end, you should ensure that a copy of the tenant files, which include the lease agreement and terms of tenancy, is transmitted to the lender.

Incidentally, the lender must post the following notification at the property:
”Foreclosure process has begun on this property, which may affect your right to continue to live in this property. Twenty days or more after the date of this notice, this property may be sold at foreclosure. If you are renting this property, the new property owner may either give you a new lease or rental agreement or provide you with a 60-day eviction notice. However, other laws may prohibit an eviction in this circumstance or provide you with a longer notice before eviction. You may wish to contact a lawyer or your local legal aid or housing counseling agency to discuss any rights you may have.”

At the same time the notice is posted, the lender must mail a copy of the notice in an envelope addressed to the ”resident of property subject to foreclosure sale”

For your own protection, prepare a ledger of income and expenses for at least the prior twelve-month period. Oftentimes, borrowers are accused of pocketing the rent rather than applying income to expenses. Depending on the language contained within the promissory note, the bank may be able to make a claim against you. To avoid this problem, show the lender what you received from the tenants and what you spent on the building. Also, account for each security deposit by documenting your transfer of the deposit amounts to the new owner so that the tenants don’t subsequently make a claim against you.

If you plan on remaining in the building, you can be evicted. The new landlord can serve a three-day notice to quit premised on a law that compels a prior owner who remains in possession after a foreclosure to vacate. As stated above, this law does not apply to tenants, who remain under the same leasehold terms and conditions as though the foreclosure never happened.

DW

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