Tenants’ Rights When a Property is Sold or Goes into Foreclosure

I’m often asked by tenants what they can do if the house they’re renting is about to be sold by the landlord or is headed for foreclosure. Here’s information that should prove helpful to you in these situations:

In California, landlords wishing to sell their rental property are required to notify tenants in writing of their intention to sell. Many landlords ask tenants to vacate the property promptly, since having renters occupying the property generally limit the pool of potential buyers to investors or others willing to maintain the property as a rental.

Generally speaking, a rental lease will provide terms as to how much time a landlord must give the tenant to vacate the property. If such written terms are not included in the lease, the legal time requirement is at least 90 days—and notice must be delivered to the tenant in writing.

When a new owner takes over

If a prospective buyer wishes to purchase the property free and clear of occupants, the buyer can negotiate that the seller ensures the property is vacant by close of escrow. If the seller had not previously provided a Notice to Vacate to the tenant(s), the escrow period may end up being extended, since a Notice to Vacate provides tenants 30 to 60 (or even 90) days to relocate. Furthermore, if the tenant refuses to vacate after given proper notice, then the seller may be required to initiate legal proceedings for eviction.

In the event you face a Notice to Vacate, you’re entitled to all the privileges afforded by the lease until the period expires, (though you still have to pay rent). Whether it’s a foreclosure or sale situation, you can recover all or a portion of your security deposit, subject to any allowable deductions.

If the property is sold or foreclosed upon prior to the completion of a noticed period to vacate, the new owner takes the property subject to the tenant’s lease. I have found that, frequently, new owners offer current tenants “cash for keys”—meaning they will pay tenants to facilitate moving out so there’s no need to resort to legal proceedings (like eviction).

Stay aware of the situation

Tenants generally face a different problem when the property is in foreclosure. In the vast majority of situations, a tenant’s lease will survive the foreclosure process and the new owner takes the property subject to the lease. However, to stay in good standing under a lease, a tenant must make rental payments to the landlord/current owner of the property. How do you know if a piece of property is about to go into foreclosure or seems headed that way? If the landlord isn’t keeping you updated, contact the County Recorder’s office and file a Request to Notice, asking that you be alerted to any foreclosure proceedings. By doing so, you will receive copies of a Notice of Default and Notice of Sale in a timely manner.

Tenants have substantial rights in the event of a property sale or foreclosure, but they must stay on top of the situation in order to maintain those rights. In a foreclosure, for example, chances are good your security deposit will be gone with the original landlord who lost the property—in which case, you can seek return of that security deposit from the new owner. But in order to do
so, you must have documentation confirming that the original security deposit was paid (as noted in the original lease or through a cancelled check). So be sure to keep all documents relating to your rental (i.e. leases, canceled checks, or other proof of payment, etc…). Don’t throw anything away.

If you learn that the rental property you’re living in is about to be sold or go into foreclosure, contact an attorney. They will help make sure you are able to preserve and assert all your rights as a tenant.

Are you in a situation affecting your rights as a tenant? The Law Offices of Ian S. Topf offer free consultation in a variety of issues, ranging from family law, estate planning, bankruptcy, and DUIs and landlord/tenant disputes.

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