A new California bill has passed the assembly and is being considered in Senate. Assembly bill 2586 addresses the situation of renters facing foreclosure due to the financial problems of their landlords. Bob Hunt in Realty Times cites a study that indicates 20%-25% of residential foreclosures involve rental properties. Renters now frequently find themselves without their security deposits and scrambling to find another place to live. Here’s some of the key points of AB 2586:
Under existing law a landlord may not attempt to terminate a tenancy by taking such actions as changing the locks or stopping utility services. By making it clear that a successor in interest who acquires a rental property through foreclosure is a landlord for purposes of the law, AB 2586 would provide a legal basis for preventing such harassment activities and/or for collecting damages should they occur.
If a landlord loses a rental property through foreclosure he is supposed to transfer security deposits either to the new owners or back to the tenants. In reality this is unlikely to happen. AB 2586 makes it clear that, should security deposits not be transferred or returned, the successor in interest (i.e. the new owner who has acquired the property through foreclosure) is jointly and severally liable for repayment of the security. The successor in interest may not require the tenant to post additional security to replace the amount that was not transferred by the former landlord/owner.
AB 2586 extensively addresses the matter of utilities. This is an issue in situations where the cost of one or more utilities has been included in the rent and payment of the utility bills has been the responsibility of the landlord. When a landlord loses a rental property in foreclosure he or she is likely to have let the utility bills go unpaid. Even if that is not the case, it is equally possible that the new owner won’t be paying them. The potential result is that the tenant will have the utility service discontinued, often without ever having received a notice.
AB 2586 requires that in such a situation the utility must provide at least 15 days notice to the resident(s) that the service is scheduled to be terminated. The notice must be posted as well as mailed to "Any Person Renting Property At ____". It must contain a statement on the outside of the envelope in large print saying, "Utility service to this address may be cut off soon." The notice shall then inform the residents that they have the right to have the service put in their names, without being required to pay any delinquent amount that is currently due. The notice and the statement on the envelope must be in English, Spanish, Chinese, Tagalog, Vietnamese, and Korean (California’s major spoken languages).
I agree with Hunt’s conclusion:
AB 2586 will not solve all the problems that foreclosure may cause for a tenant. Except in very specific circumstances, a successor in interest through foreclosure may give notice to a tenant to leave even though the tenant may have had a valid lease. Even tenants who are able to stay may find that they will have to renegotiate the terms of their tenancy. At least, though, the passage of AB 2586 will provide tenants in these situations some protections that they hitherto have not always received.
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It will, however, give sufficient protections that I’m actually thinking of renting a house for the first time in years.
Of particular interest are the 60 days notice to vacate (previously, you were out on forclosure day, even if you weren’t the one to get the first notice), and the return of your security.
If I get my deposit back, and get 60 days to move, that’s good enough. The previous plan, which was losing deposits and having to move with little notice, was a deal killer. Didn’t know about the utilities until now, but I don’t generally get places with utilities covered.
This isn’t a bill just to protect tenants – it protects SFR landlords, too, since I don’t know of ONE renter who was considering renting a SFR in this market under the old rules. Too risky.
Thanks for the notice, I just fired off a letter to my state senator to get off the ball and see this passes. We’ll see if that helps.
It would be really nice to see a law passed like this one in Arizona. I do think it should include some type of stipulation that the tenants are current so that they don’t scam the landlords.
So under this law, we will have to discount the bid on a foreclosure by several thousand dollars to protect against the potential cost of being an accidental landlord.
Great Idea – the value of foreclosed homes will drop even more.
Dale -
Or else what? Is 60 days to quit really so onerous?
Want to discount the value of the home even more? Ask me to leave without returning my security deposit or giving me 30 days… Trust me, it’ll cost you more.
This legislation is a typically medieaval response to a 21-st century problem: housing. This keeps people in housing? B.S. Total b.s.
To me, the fundamental issue here is justice and equity, two of the guiding principles embodied in the U.S. Declaration of Independence and the U.S. Constitution.
As the Sheriff of the County in which Chicago lies, said, “It is not serving justice for us to evict a tenant who has stayed current with the rent and done nothing wrong.” Accordingly, he issued orders to all his deputies to refuse to carry out court eviction orders unless it can be verified that the evictees were in fact the defaulting parties on the mortgage that went to foreclosure.
There’s some practical, common-sense issues involved as well.
1. Just how sensible is it, in today’s economy, with the shrunken standard of living that most Americans are living with, to expect the tenant, (especially one who doesn’t learn of the foreclosure until the last minute) to have stayed current on their rent and utilities, AND been able to accumulate the moneys necessary to rent a new place and pay the movers?
IMO it’s total idiocy, and completely inhumane to boot, and I consider myself a right-wing, Constitution-loving Conservative.
2. How does it help the tenant to secure new living space when you deal a mortal blow to his creditworthiness by sticking him with a court-ordered EVICTION on his record.
This one really stinks because if there is one credit flaw that causes 99.99% of landlords REFUSE to rent to a new tenant, it is having been evicted from a former dwelling.
Those of you arguing against providing the well-performing tenant with additional protections in the case of their landlord being foreclosed, are basically taking a position that will make our nationwide HOMLESS CRISIS a hundredfold worse than it now is. Talk about spreading suffering and misery!!
How low can you get?